What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2022-03-23 compared with 2021-03-23 · 846 added, 917 removed, 94 unchanged (95% of the section changed)

FINANCIAL STATEMENTS

AND SUPPLEMENTARY DATA

of Independent Registered Public Accounting Firm

Balance Sheets as of December 31, 2020 and 2019

Statements of Operations for the Years Ended December 31, 2020 and 2019

Statements of Changes in Stockholders’

Equity for the Years Ended December 31, 2020 and 2019

Statements of Cash Flows for the Years Ended December 31, 2020 and 2019

to Consolidated Financial Statements

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Report of Independent Registered Public Accounting Firm (PCAOB No.

Consolidated Balance Sheets as of December 31, 2021 and 2020 F-2

Consolidated Statements of Income for the Years Ended December 31, 2021 and 2020 F-3

Consolidated Statements of Changes in Stockholders’ Equity for the Years Ended December 31, 2021 and 2020 F-4

Consolidated Statements of Cash Flows for the Years Ended December 31, 2021 and 2020 F-5

Notes to Consolidated Financial Statements F-6

OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

the Shareholders and Board of Directors

To the Shareholders and Board of Directors of

Paltalk, Inc.

and Subsidiaries

on the Financial Statements

have audited the accompanying consolidated balance sheets of Paltalk, Inc.

and Subsidiaries (the “Company”) as of

December 31, 2020 and 2019, the related consolidated statements of operations, changes in stockholders’

equity and cash

flows for each of the two years in the period ended December 31, 2020, and the related notes (collectively referred to as the

“financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial

position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the

two years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States

financial statements are the responsibility of the Company's management.

Our responsibility is to express an opinion on the Company's

financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight

Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audits

to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial

As part of our audits we are required to obtain an understanding of internal control over financial reporting but not

for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting.

we express no such opinion.

audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to

error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence

regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles

used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance

sheets of Paltalk, Inc.

and Subsidiaries (the “Company”) as of December 31, 2021 and 2020, the related consolidated statements

of income, changes in stockholders’ equity and cash flows for each of the two years in the period ended December 31, 2021, and the

related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly,

in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and

its cash flows for each of the two years in the period ended December 31, 2021, in conformity with accounting principles generally accepted

in the United States of America.

Basis for Opinion

These financial statements are

the responsibility of the Company's management.

Our responsibility is to express an opinion on the Company's financial statements based

on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB")

and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable

rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance

with the standards of the PCAOB.

Those standards require that we plan and perform the audits to obtain reasonable assurance about whether

the financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were

we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits we are required to obtain an understanding

of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal

control over financial reporting.

Accordingly, we express no such opinion.

Our audits included performing

procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures

that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the

financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management,

as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for

Critical Audit Matters

critical audit matters communicated below are matters arising from the current period audit of the financial statements that were

communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material

to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of

critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by

communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or

disclosures to which they relate.

of the Accounting for and Disclosure of Digital Tokens and Related Technology Service Revenue

As disclosed in Notes 2 and

7 to the consolidated financial statements, the Company’s digital tokens, which mainly consist of utility tokens (“Props”),

held as of December 31, 2020, are accounted for as indefinite-lived intangible assets, and have been included in non-current assets

on the consolidated balance sheet.

The Company’s digital tokens as of December 31, 2020 totaled $439,145.

Also, as disclosed in Note 2 and 7 to the

consolidated financial statements, during the year ended December 31, 2020 the Company entered into a contract with a customer

to provide technology services, which included the Company agreeing to serve as a launch partner, integrate the customer’s

Props infrastructure into the Company’s multimedia social applications, perform side-chain validator services and operate

a loyalty program for the customer.

Additionally, the Company was to provide Props under the loyalty platform to its customers

based on their usage and activities on its multimedia social applications.

In exchange for these services, the revenue earned by

the Company was to be paid in Props.

The Props were recorded at their estimated fair value on the transaction dates.

In connection

with the agreement, the Company recognized revenue related to the technology services of $525,748, of which $210,000 was included

as a receivable as of December 31, 2020.

Digital tokens owed to the Company’s customers under the loyalty program as of December

31, 2020 totaled $123,397 and were recorded as a current liability.

We identified the accounting for and disclosure

of digital tokens and the related technology service revenue as a critical audit matter for the following reasons.

Currently, no

authoritative guidance exists for the accounting for and disclosure of digital assets in accordance with accounting principles

generally accepted in the United States (“GAAP”).

The Company’s management has exercised significant judgment

in their determination of how existing GAAP should be applied to the accounting for digital assets, the related technology service

revenue, the associated financial statement presentation and accompanying footnote disclosures.

Further, specialists were required

to perform audit procedures to test the valuation of the Props token used in the determination of the Company’s recognition

of technology service revenue, and with the associated carrying amounts of the digital token assets and liability.

primary procedures we performed to address this critical audit matter included the following:

● We evaluated management’s rationale for the application of Accounting Standards Codification (“ASC”)

350 to account for its digital tokens held and application of ASC 606 for the related technology service revenue;

● We evaluated management’s basis for recording digital token intangible assets and receivables as

a non-current asset, and digital tokens payable as a current liability on the balance sheet;

● We evaluated management’s disclosures of its digital token activity in the financial statement footnotes;

● We confirmed digital asset receivables and payables with the Company’s customer and examined supporting

documentation and evidence of Props earned by the Company and its customers;

● We tested the digital token activity by comparing the Company’s digital tokens wallet records to

publicly available blockchain records;

● We performed testing procedures to gain reasonable assurance that the digital wallets and associated addresses

were owned by the Company;

● We utilized our internal valuation specialist to test the valuation methods and assumptions used by management

to estimate the value of the digital tokens earned and held.

have served as the Company’s auditor since 2016.

Critical audit matters are matters arising from the current period audit

of the financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts

or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

We determined that there are no critical audit matters.

/s/ Marcum LLP

We have served as the Company’s auditor

March 23, 2022

BALANCE SHEETS

Current assets:

and cash equivalents

receivable, net of allowances of $3,648 and $23,832, as of December 31, 2020 and 2019, respectively

expense and other current assets

current assets

tokens receivable

lease right-of-use asset

and equipment, net

and stockholders’

expenses and other current liabilities

lease liabilities, current portion

tokens payable

debt, current portion

subscription revenue

Cash and cash equivalents

Accounts receivable, net of allowances of $ 3,648 as of December 31, 2021 and 2020, respectively

Prepaid expense and other current assets

Total current assets

Operating lease right-of-use asset

Property and equipment, net

Intangible assets, net

Digital tokens

Digital tokens receivable

Liabilities and stockholders’ equity

Current liabilities:

lease liabilities, non-current portion

debt, non-current portion

and contingencies

Stockholders’

stock, $0.001 par value, 25,000,000 shares authorized, 6,916,404 and 6,878,904 shares issued and 6,906,454 and 6,877,004 shares

outstanding as of December 31, 2020 and 2019, respectively

Treasury stock,

9,950 and 1,900 shares, at par as of December 31, 2020 and 2019, respectively

paid-in capital

Accounts payable

Accrued expenses and other current liabilities

Operating lease liabilities, current portion

Digital tokens payable

Term debt, current portion

Deferred subscription revenue

Total current liabilities

Operating lease liabilities, non-current portion

Term debt, non-current portion

Total liabilities

Commitments and contingencies (Note 14)

Stockholders’ equity:

Common stock, $ 0.001 par value, 25,000,000 shares authorized, 9,864,120 and 6,916,404 shares issued and 9,832,157 and 6,906,454 shares outstanding as of December 31, 2021 and 2020, respectively

Treasury stock, 31,963 and 9,950 shares as of December 31, 2021 and 2020, respectively

Additional paid-in capital

Accumulated deficit

( 10,404,983 )

( 11,729,089 )

stockholders’

liabilities and stockholders’

Total stockholders’ equity

Total liabilities and stockholders’ equity

accompanying notes are an integral part of these consolidated financial statements.

STATEMENTS OF OPERATIONS

STATEMENTS OF INCOME

Advertising revenue

service revenue

Costs of revenue

and marketing expense

development expense

and administrative expense

loss on goodwill

Total revenue

Costs and expenses

(loss) from continuing operations

from sale of Secured Communications Assets

Costs of revenue

Sales and marketing

Product development

General and administrative

loss on digital tokens

(loss) from continuing operations before provision for income taxes

tax (expense) benefit

income (loss) from continuing operations

on sale from discontinued operations

from discontinued operations

tax expense from discontinued operations

income from discontinued operations

income (loss)

net income (loss) per share of common stock:

income (loss) per share of common stock

net income (loss) per share of common stock:

loss per share of common stock

average number of shares of common stock used in calculating net loss per share of common stock:

Total costs and expenses

Income from operations

Interest income,

Gain from sale of

Secured Communications Assets

Gain on extinguishment

Realized gain (loss)

from the sale of digital tokens

Income from operations before provision

for income taxes

Net income per share of common stock:

average number of shares of common stock used in calculating net income per share of common stock:

accompanying notes are an integral part of these consolidated financial statements.

STATEMENTS OF CHANGES IN STOCKHOLDERS’

Stockholders’

at December 31, 2018

$ (4,720,291 )

compensation expense for restricted stock awards and stock options

of common stock for consulting services

of common stock

at December 31, 2019

$ (13,100,351 )

compensation expense

of common stock for consulting services

of common stock

at December 31, 2020

$ (11,729,089 )

STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

Stockholders’

Balance at December 31, 2019

Stock-based compensation expense

Issuance of common stock for consulting services

Repurchases of common stock

Balance at December 31, 2020

Stock-based compensation expense

Issuance of common stock

Issuance of common stock pursuant to cashless option exercises

Treasury stock received from cashless option exercises

Issuance of common stock pursuant to option exercise

Balance at December 31, 2021

accompanying notes are an integral part of these consolidated financial statements.

1 unchanged sentence

Cash flows from operating activities:

income (loss)

$ (8,380,060 )

Income from discontinued operations

(loss) from continuing operations

to reconcile net income (loss) from continuing operations to net cash provided by (used in) operating activities of continuing

of property and equipment

of intangible assets

of operating lease right-of-use assets

on lease termination

on disposal of property and equipment

of note receivable

stock issued for consulting services

loss on goodwill

loss on digital tokens

(gain) loss from the sale of digital tokens

in operating assets and liabilities:

card holdback receivable

tokens receivable

lease liability

tokens payable

expense and other current assets

payable, accrued expenses and other current liabilities

subscription revenue

technology service revenue

cash provided by (used in) continuing operating activities

cash used in discontinued operating activities

cash provided by (used in) operating activities

flows from investing activities:

for property and equipment, including website development, net

from Secured Communications Assets

from the sale of digital tokens

cash provided by (used in) continuing investing activities

cash provided by discontinued investing activities

cash provided by investing activities

flows from financing activities:

of treasury stock

cash provided by (used in) financing activities

increase (decrease) in cash and cash equivalents

of cash and cash equivalents at beginning of period

of cash and cash equivalents at end of period

Adjustments to reconcile net income from operations to net cash provided by operating activities:

Depreciation of property and equipment

Amortization of intangible assets

Amortization of operating lease right-of-use assets

Gain on cancellation of office lease

Loss on disposal of property and equipment

Gain on extinguishment of digital token liability

Impairment loss on digital tokens

Realized (gain) loss from the sale of digital tokens

Write-off of note receivable

Gain on extinguishment of term debt

Stock-based compensation

Bad debt expense

Common stock issued for consulting services

Changes in operating assets and liabilities:

Digital tokens

Accounts receivable

Digital tokens receivable

Operating lease liability

Digital tokens payable

Prepaid expense and other current assets

Accounts payable, accrued expenses and other current liabilities

Deferred subscription revenue

Net cash provided by operating activities

Cash flows from investing activities:

Proceeds from Secured Communications Assets

Proceeds from the sale of digital tokens

Net cash provided by investing activities

Cash flows from financing activities:

Borrowings of term debt

Proceeds from issuance of common stock, net of issuance costs

Proceeds from issuance of common stock pursuant to option exercise

Purchase of treasury stock

Net cash provided by financing activities

Net increase in cash and cash equivalents

Balance of cash and cash equivalents at beginning of period

Balance of cash and cash equivalents at end of period

Supplemental disclosure of cash flow information:

Non-cash investing and financing activities:

Modification of operating lease right-of-use asset and liability

Issuance of common stock pursuant to cashless option exercises

Treasury stock received from cashless option exercises

accompanying notes are an integral part of these consolidated financial statements.

1 unchanged sentence

and Description of Business

The accompanying consolidated financial statements include Paltalk, Inc.

accompanying consolidated financial statements include Paltalk, Inc.

and its wholly owned subsidiaries, A.V.M.

Software, Inc.,

Paltalk Software Inc., Paltalk Holdings, Inc., Tiny Acquisition Inc., Camshare, Inc., Fire Talk LLC and Vumber LLC (collectively,

the “Company”).

May 15, 2020, the Company changed its name from “PeerStream, Inc.”

to “Paltalk, Inc.”

In connection with

the name change, the Company changed its trading symbol on the OTCQB Marketplace from “PEER”

to “PALT.”

Company is a communications software innovator that powers multimedia social applications.

The Company’s product portfolio

includes Paltalk and Camfrog, which together host a large collection of video-based communities.

The Company’s other products

include Tinychat and Vumber.

The Company has an over 20-year history of technology innovation and holds 18 patents.

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

reached multiple other countries, including the United States, 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

Although the Company cannot predict the impact that the COVID-19 pandemic will have on its business or results of operations

in future periods, to date, the Company’s core multimedia social applications have been able to support the increased demand

the Company has experienced.

On May 3, 2020, to help ensure adequate liquidity in light of the uncertainties posed by the COVID-19

pandemic, the Company entered into a promissory note with an aggregate principal amount of $506,500 (the “Note”) in

favor of Citibank, N.A., as lender (the “Lender”) under the Small Business Administration (“SBA”) Paycheck

Protection Program under the recently enacted Coronavirus Aid, Relief and Economic Security Act (“CARES Act”).

January 13, 2021, the Note was fully forgiven by the SBA and the Lender in compliance with the provisions of the CARES Act.

Summary of Significant

Accounting Policies

Software, Inc., Paltalk

Software Inc., Paltalk Holdings, Inc., Tiny Acquisition Inc., Camshare, Inc., Fire Talk LLC and Vumber LLC (collectively, the “Company”).

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

of video-based communities.

The Company’s other product is Vumber, which is a telecommunications services provider that enables

users to communicate privately by having multiple phone numbers with any area code through which calls can be forwarded to a user’s

existing telephone number.

The Company has an over 20-year history of technology innovation and hold 14 patents.

World Health Organization declared COVID-19 a pandemic on March 11, 2020.

The global spread of the COVID-19 pandemic and the various

attempts to contain it have created significant volatility, uncertainty and economic disruption.

COVID-19 continues to have an unpredictable

and unprecedented impact on the U.S.

economy as federal, state and local governments react to this public health crisis with travel restrictions

and potential quarantines.

Although the Company’s core multimedia social applications have been able to support the increased demand

we have experienced, the extent of the future impact of the COVID-19 pandemic on our business is highly uncertain and difficult to predict.

Adverse economic and market conditions as a result of COVID-19 could also affect the demand for the Company’s applications and

the ability of the Company’s users to satisfy their obligations to the Company.

If the pandemic continues to cause significant

negative impacts to economic conditions, the Company’s results of operations, financial condition and liquidity could be materially

and adversely impacted.

April 13, 2020, to help ensure adequate liquidity in light of the uncertainties posed by the COVID-19 pandemic, the Company applied for

a loan under the Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”) under the Coronavirus

Aid, Relief, and Economic Security Act (the “CARES Act”), and on May 3, 2020, the Company entered into a promissory note

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

On January 13, 2021, the Note was fully forgiven by the SBA and the Lender in compliance with the provisions of the CARES Act.

does not expect to incur additional indebtedness under the CARES Act.

of Significant Accounting Policies

of Consolidation

accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries and were

prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and

with the requirements of the Security and Exchange Commission (“SEC”).

All intercompany balances and transactions

have been eliminated upon consolidation.

accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries and were prepared

in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and with the requirements

of the Security and Exchange Commission (“SEC”).

All intercompany balances and transactions have been eliminated upon consolidation.

Estimates and Assumptions

preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect

the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of

revenue and expenses during the reporting period.

estimates relied upon in preparing these financial statements include the estimates used to determine the fair value of the stock

options issued in share-based payment arrangements, collectability of the Company’s accounts receivable, measurements of

proportional performance under certain service contracts, subscription revenues net of refunds, credits, and known and estimated

credit card chargebacks, the valuation allowance on deferred tax assets, fair value of digital tokens and impairment assessment

Management evaluates these estimates on an ongoing basis.

Changes in estimates are recorded in the period in which

they become known.

The Company bases estimates on historical experience and various other assumptions that it believes to be reasonable

under the circumstances.

Actual results may differ from the Company’s estimates.

preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported

amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses

during the reporting period.

Significant estimates relied upon in preparing these

financial statements include the estimates used to determine the fair value of the stock options issued in share-based payment arrangements,

subscription revenues net of refunds, credits, and known and estimated credit card chargebacks and the fair value of digital tokens.

evaluates these estimates on an ongoing basis.

Changes in estimates are recorded in the period in which they become known.

bases estimates on historical experience and various other assumptions that it believes to be reasonable under the circumstances.

results may differ from the Company’s estimates.

TO CONSOLIDATED FINANCIAL STATEMENTS

Value Measurements

fair value framework under the guidance issued by the Financial Accounting Standards

Board (“FASB’”) requires the categorization of assets and liabilities

into three levels based upon the assumptions used to measure the assets or liabilities.

Level 1 provides the most reliable measure of fair value, whereas Level 3, if applicable,

would generally require significant management judgment.

The three levels for categorizing

assets and liabilities under the fair value measurement requirements are as follows:

measurement of the asset or liability using observable inputs such as quoted prices in active markets for identical assets

or liabilities;

measurement of the asset or liability using inputs other than quoted prices that are observable for the applicable asset or

liability, either directly or indirectly, such as quoted prices for similar (as opposed to identical) assets or liabilities

in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active;

measurement of the asset or liability using unobservable inputs that reflect the Company’s own assumptions regarding

the applicable asset or liability.

fair value framework under the guidance issued by the Financial Accounting Standards Board (“FASB’”) requires the categorization

of assets and liabilities into three levels based upon the assumptions used to measure the assets or liabilities.

Level 1 provides the

most reliable measure of fair value, whereas Level 3, if applicable, would generally require significant management judgment.

levels for categorizing assets and liabilities under the fair value measurement requirements are as follows:

Fair value measurement of the asset or liability using observable inputs such as quoted

prices in active markets for identical assets or liabilities;

Fair value measurement of the asset or liability using inputs other than quoted prices

that are observable for the applicable asset or liability, either directly or indirectly,

such as quoted prices for similar (as opposed to identical) assets or liabilities in active

markets and quoted prices for identical or similar assets or liabilities in markets that

are not active;

Fair value measurement of the asset or liability using unobservable inputs that reflect

the Company’s own assumptions regarding the applicable asset or liability.

Company reviews the appropriateness of fair value measurements including validation processes, and the reconciliation of period-over-period

fluctuations based on changes in key market inputs.

All fair value measurements are subject to the Company’s analysis.

and approval by management is required as part of the validation process.

carrying amounts of the Company’s cash and cash equivalents, accounts receivable and accounts payable, approximate fair

value due to the short-term nature of these instruments.

accordance with Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers , revenue

from contracts with customers is recognized when control of the promised services is transferred to the customers in an amount

that reflects the consideration the Company expects to receive in exchange for those services.

Sales tax is excluded from reported

The Company has elected the practical expedient allowable by the guidance to not disclose information about remaining

performance obligations pertaining to contracts that have an original expected duration of one year or less.

Company generates subscription revenue primarily from monthly premium subscription services.

Subscription revenues are presented

net of refunds, credits, and known and estimated credit card chargebacks.

During the years ended December 31, 2020 and 2019, subscriptions

were offered in durations of one-, three-, six- and twelve- month terms.

All subscription fees, however, are paid by credit card

at the origination of the subscription regardless of the term of the subscription.

Revenues from multi-month subscriptions are

recognized on a straight-line basis over the period where the service is offered to the customer, indicated by length of the subscription

term purchased.

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

balance sheets.

Deferred revenue at December 31, 2019 was $1,829,493, of which $1,829,493 was subsequently recognized as subscription

revenue during the year ended December 31, 2020.

The ending balance of deferred revenue at December 31, 2020 was $2,058,721.

addition, the Company offers virtual gifts to its users.

Users may purchase credits in $5, $10 or $20 increments that can be redeemed

for a host of virtual gifts such as a rose, a beer or a car, among other items.

These gifts are given among users to enhance communication

and are typically redeemed within 30 days of purchase.

Upon purchase, the virtual gifts are credited to the users’

and are under the users’

Virtual gift revenue is recognized upon the users’

redemption of virtual gifts at

the fixed transaction price and included in subscription revenue in the accompanying consolidated statements of operations.

gift revenue is presented as deferred revenue in the consolidated balance sheets until virtual gifts are redeemed.

revenue was $5,188,858 and $5,079,837 for the years ended December 31, 2020 and 2019, respectively.

The ending balance of deferred

revenue from virtual gifts at December 31, 2020 and 2019 was $348,677 and $411,326, respectively.

All fair value measurements are subject to the Company’s analysis.

approval by management is required as part of the validation process.

carrying amounts of the Company’s cash and cash equivalents, accounts receivable and accounts payable, approximate fair value due

to the short-term nature of these instruments.

accordance with Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers , revenue from

contracts with customers is recognized when control of the promised services is transferred to the customers in an amount that reflects

the consideration the Company expects to receive in exchange for those services.

Sales tax is excluded from reported revenue.

has elected the practical expedient allowable by the guidance to not disclose information about remaining performance obligations pertaining

to contracts that have an original expected duration of one year or less.

The Company generates subscription revenue primarily

from monthly premium subscription services.

Subscription revenues are presented net of refunds, credits, and known and estimated credit

card chargebacks.

During the years ended December 31, 2021 and 2020, subscriptions were offered in durations of one-, three-, six- and

twelve- month terms.

All subscription fees, however, are paid by credit card at the origination of the subscription regardless of the

term of the subscription.

Revenues from multi-month subscriptions are recognized on a straight-line basis over the period where the service

is offered to the customer, indicated by length of the subscription term purchased.

The unearned portion of subscription revenue is presented

as deferred revenue in the accompanying consolidated balance sheets.

Deferred revenue at December 31, 2020 was $ 2,058,721 , which was subsequently

recognized as subscription revenue during the year ended December 31, 2021.

The ending balance of deferred revenue at December 31, 2021

was $ 1,915,493 .

In addition, the Company offers virtual gifts

to its users.

Users may purchase credits in $5, $10 or $20 increments that can be redeemed for a host of virtual gifts such as a rose,

a beer or a car, among other items.

These gifts are given among users to enhance communication and are typically redeemed within 30 days

Upon purchase, the virtual gifts are credited to the users’ account and are under the users’ control.

gift revenue is recognized upon the users’ redemption of virtual gifts at the fixed transaction price and included in subscription

revenue in the accompanying consolidated statements of income.

Virtual gift revenue is presented as deferred revenue in the consolidated

balance sheets until virtual gifts are redeemed.

Virtual gift revenue was $ 5,586,710 and $ 5,188,858 for the years ended December 31, 2021

and 2020, respectively.

The ending balance of deferred revenue from virtual gifts at December 31, 2021 and 2020 was $ 293,737 and $ 348,677 ,

respectively.

Company generates advertising revenue from the display of advertisements on its products through contractual agreements with third parties

that are based on the number of advertising impressions delivered.

Measurements of impressions include when a customer clicks an advertisement

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

or through the application (CPA basis).

Advertising revenue is dependent upon traffic as well as the advertising inventory placed on

the Company’s products.

TO CONSOLIDATED FINANCIAL STATEMENTS

Company generates advertising revenue from the display of advertisements on its products through contractual agreements with third

parties that are based on the number of advertising impressions delivered.

Measurements of impressions include when a customer

clicks an advertisement (CPC basis), views an advertisement impression (CPM basis), or registers for an external website via an

advertisement by clicking on or through the application (CPA basis).

Advertising revenue is dependent upon traffic as well as

the advertising inventory placed on the Company’s products.

Service Revenue

Communications .

During 2019 and the first quarter of 2020, technology service revenue consisted of revenue that was recognized

under the Company’s technology services agreement (the “ProximaX Agreement”) with ProximaX Limited (“ProximaX”)

and was recognized based upon proportional performance using labor hours as the unit of measurement.

Pursuant to the terms of

the ProximaX Agreement, ProximaX agreed to pay the Company, among other things, up to an aggregate of $10.0 million of cash or

certain highly liquid cryptocurrencies in exchange for the Company’s services, $5.0 million of which was paid in May 2018,

$2.5 million of which was due upon completion the second development milestone set forth in the ProximaX Agreement and $2.5 million

of which was due upon completion of the third development milestone set forth in the ProximaX Agreement.

June 24, 2019, the Company and ProximaX entered into an agreement to terminate the ProximaX Agreement (the “Termination

Agreement”) and provide for payment terms for the remaining $2.5 million due under the ProximaX Agreement.

The portion of

the upfront fee that remained unrecognized as of the termination of the ProximaX Agreement was $1.6 million and was recognized

as revenue upon such termination, in addition to the $1.7 million of revenue recognized in the first quarter of 2019.

is no assurance of collectability on the remaining payments, revenue is being recognized as the payments under the Termination

Agreement are received.

For the year ended December 31, 2020, the Company recognized approximately $15.0 thousand in revenue in

connection with payments received under the Termination Agreement.

July 23, 2020, the Company completed an asset sale in relation to the secure communications

See Note 15, Sale of Secure Communication Assets, to the consolidated financial

statements for further information.

The Company does not expect to continue to pursue

secure communications products or technology implementation services as part of its overall

business strategy.

Partnerships .

During the second and third quarters of 2020, the Company recorded technology service revenue in connection

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

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

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

to the terms of the YouNow Agreement, YouNow agreed to pay the Company, in exchange for

the Company’s services, an aggregate of 10.5 million cryptographic props tokens

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

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 Company’s Camfrog application

and (iii) 3.5 million Props tokens due upon the integration of the Props platform in

the Company’s Paltalk application.

In determining the value of the contract, the

Company converted the Props tokens into U.S.

dollars using an independent third-party

The Props tokens were estimated to have a price equal to $0.02 per token (see

Note 7 for additional information on the fair value of the Props tokens) at the contract

inception date.

Technology service revenue is generated under

service and partnership agreements that the Company negotiates with third parties which includes development, integration, engineering,

licensing or other services that the Company provides.

On May 29, 2020, the Company entered into an Asset Purchase Agreement,

which was subsequently amended and restated (the “Amended and Restated Agreement”), with SecureCo, LLC (“SecureCo”),

pursuant to which the Company agreed to sell substantially all of the assets related to its secure communications business to SecureCo.

The Amended and Restated Agreement also provides for a revenue sharing arrangement, pursuant to which the Company is entitled to receive

quarterly royalty payments ranging from 5 % to 10 % of certain revenues received by SecureCo, with the aggregate amount of such royalty

payments not to exceed $ 500,000 .

The royalty payments, if received, will be recorded as technology service revenue.

The Company does not

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

Company also recorded technology service revenue in connection with its agreement to serve as a launch partner with Open Props, Inc.

(formerly YouNow, Inc., and referred to herein as “YouNow”) and to integrate YouNow’s props infrastructure (the “Props

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

to the terms of the YouNow Agreement, YouNow agreed to pay the Company, in exchange for the Company’s 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

Company’s Camfrog application and (iii) 3.5 million Props tokens due upon the integration of the Props platform in the Company’s

Paltalk application.

In determining the value of the contract, the Company converted the Props tokens into U.S.

dollars using an independent

third-party valuation.

The Props tokens were estimated to have a price equal to $0.02 per token (see Note 7 for additional information

on the fair value of the Props tokens) at the contract inception date.

The total contract value to be recognized was estimated to be

which is recognized on the completion dates of the integration services performed.

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 contract.

During the year ended December 31, 2020, the Company

recognized $60,000 of the upfront fee and $150,000 from the completion of the first and second integration milestones under technology

service revenue in the consolidated statements of operations and digital tokens receivable in the consolidated balance sheets.

$210,000, which was recognized on the completion dates of the integration services performed during the second and third quarters of

The upfront fee was 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 contract.

During the year ended December 31, 2020, the Company recognized $60,000 of the upfront fee and $150,000 from

the completion of the first and second integration milestones under technology service revenue in the consolidated statements of income

and digital tokens receivable in the consolidated balance sheets.

Once the integration of Props tokens into the

Company’s Paltalk and Camfrog applications was completed, the Company began receiving Props tokens for providing a validator service

and for allowing users to participate in the loyalty platform.

The loyalty platform is intended to drive engagement and incentivize users

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

During the third

and fourth quarters of 2020, the Company received an aggregate of 1.1 million Props tokens for the validator service and 13.5 million

Props tokens under the loyalty platform.

During the year ended December 31, 2021, the Company received 1.5 million Props tokens for the

validator service and 24.3 million Props tokens under the loyalty platform.

The net revenue earned was recorded under “technology

service revenue” in the consolidated statements of income.

For the year ended December

31, 2020, the Company retained an independent third-party to estimate the dollar value of the revenue for the validator service and digital

tokens earned through the loyalty platform.

Given the recent trading availability of Props tokens in various active markets, during the

year ended December 31, 2021, the Company calculated the fair value of digital tokens based on the observable daily quoted market prices

(Level 1 inputs) on multiple international exchanges, as recorded on CoinmarketCap (see Note 7 for additional information on the fair

value of the Props tokens).

The total net revenue value recognized as earned was estimated to be $ 454,504 and $ 525,748 for the years ended

December 31, 2021 and 2020, respectively.

In August 2021, the Company received notice from

YouNow that it was terminating the YouNow Agreement, and that it would no longer support the Props platform past the end of calendar year

In connection with the notice of termination and in accordance with the YouNow Agreement, the Company received an additional 2,625,000

Props tokens.

The value of these tokens was recorded as revenue under “technology service revenue” in the consolidated statements

As a result of the termination of the YouNow Agreement, the Company notified its users that it would no longer be issuing Props

starting October 15, 2021 and would be replacing any user’s outstanding Props with a new internal rewards program.

The new rewards

loyalty program for Paltalk and Camfrog, allowed users to keep their existing rewards earned from the former Props program as internal

rewards and also have the opportunity to earn new internal rewards points.

In connection with the internal rewards points, the Company

added 25 new reward tiers such as specialty coins, subscriptions, stickers, flair, and other popular buttons.

As of the termination of the YouNow Agreement,

the Company held 8,575,638 Props, or $ 338,553 , under “digital tokens payable” in our consolidated balance sheets.

In accordance

with ASC 405-20-40, the Company recorded a $ 338,553 gain on extinguishment of digital tokens payable under the Company’s operation

expenses in the statement of income for the year ended December 31, 2021.

TO CONSOLIDATED FINANCIAL STATEMENTS

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

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 the Company’s 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 determining the value of the revenue for the validator service and digital tokens earned through the loyalty platform, the

Company converted the Props tokens into U.S.

dollars using an independent third-party valuation (see Note 7 for additional information

on the fair value of the Props tokens).

The total net revenue value to be recognized was estimated to be $315,748 which is recognized

to the Company’s estimates may result in increases or decreases to revenues and income and are reflected in the consolidated

financial statements in the periods in which they are first identified.

If the Company’s estimates indicate that a contract

loss will be incurred, a loss provision is recorded in the period in which the loss first becomes probable and can be reasonably

Contract losses are the amount by which the estimated costs of the contract exceed the estimated total revenue that

will be generated by the contract and are included in cost of revenues in the Company’s consolidated statements of operations.

There were no contract losses for the periods presented.

December 31, 2019, digital tokens consisted of XPX tokens received in connection with the ProximaX Agreement.

At December 31,

2020, digital tokens and digital tokens receivable consist of Props tokens received in connection with the YouNow Agreement.

that there is limited precedent regarding the classification and measurement of cryptocurrencies and other digital tokens under

current GAAP, management has exercised significant judgment in determining the appropriate accounting treatment and in the event

that authoritative guidance is enacted by the FASB, the Company may be required to change its policies, which could have an effect

on the Company’s consolidated financial position and results from operations.

to the Company’s estimates may result in increases or decreases to revenues and income and are reflected in the consolidated financial

statements in the periods in which they are first identified.

If the Company’s estimates indicate that a contract loss will be

incurred, a loss provision is recorded in the period in which the loss first becomes probable and can be reasonably estimated.

losses are the amount by which the estimated costs of the contract exceed the estimated total revenue that will be generated by the contract

and are included in cost of revenues in the Company’s consolidated statements of operations.

There were no contract losses for

the periods presented.

At December 31, 2020, digital tokens and digital tokens receivable

consist of Props tokens received in connection with the YouNow Agreement.

Given that there is limited precedent regarding the classification

and measurement of cryptocurrencies and other digital tokens under current GAAP, management has exercised significant judgment in determining

the appropriate accounting treatment and in the event that authoritative guidance is enacted by the FASB, the Company may be required

to change its policies, which could have an effect on the Company’s consolidated financial position and results from operations.

Company determined to account for digital tokens as indefinite-lived intangible assets in accordance with ASC 350, Intangibles-Goodwill

Indefinite-lived intangible assets are not amortized but assessed for impairment annually, or more frequently when

events or changes in circumstances occur indicating that it is more likely than not that the indefinite-lived asset is impaired.

Impairment exists when the carrying amount exceeds its fair value, which is measured using the quoted price of the digital token

at the time its fair value is being measured.

testing for impairment, the Company has the option to first perform a qualitative assessment to determine whether it is more likely

than not that an impairment exists.

If it is determined that it is not more likely than not that an impairment exists, a quantitative

impairment test is not necessary.

Otherwise, it is required to perform a quantitative impairment test.

If, at the time of an impairment

test, the carrying amount of an intangible asset exceeds its fair value, an impairment loss in an amount equal to the excess is

Subsequent reversal of impairment losses is not permitted.

(if any) are not recorded until realized upon sale, at which point they would be presented net of any impairment losses in the

Company’s consolidated statements of operations.

In determining the gain to be recognized upon sale, the Company calculates

the difference between the sales price and carrying value of the specific digital token sold immediately prior to sale.

Indefinite-lived intangible assets are not amortized but assessed for impairment annually, or more frequently when events

or changes in circumstances occur indicating that it is more likely than not that the indefinite-lived asset is impaired.

exists when the carrying amount exceeds its fair value, which is measured using the quoted price of the digital token at the time its

fair value is being measured.

In testing for impairment, the Company

has the option to first perform a qualitative assessment to determine whether it is more likely than not that an impairment exists.

it is determined that it is not more likely than not that an impairment exists, a quantitative impairment test is not necessary.

it is required to perform a quantitative impairment test.

If, at the time of an impairment test, the carrying amount of an intangible

asset exceeds its fair value, an impairment loss in an amount equal to the excess is recognized.

Subsequent reversal of impairment losses

is not permitted.

Gains (if any) are not recorded until realized

upon sale, at which point they would be presented net of any impairment losses in the Company’s consolidated statements of income.

In determining the gain to be recognized upon sale, the Company calculates the difference between the sales price and carrying value of

the specific digital token sold immediately prior to sale.

year the ended December 31, 2021, the Company sold approximately 36.9 million Props tokens for total proceeds of $ 0.9 million.

gain of the sale of digital tokens was approximately $ 307,934 for the year ended December 31, 2021 and is included in the consolidated

statements of income.

Company determines the fair value of its digital tokens on a nonrecurring basis in accordance with ASC 820, Fair Value Measurement.

See Note 7, Digital Tokens, to the consolidated financial statements for further information regarding the Company’s digital

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.

Note 7, Digital Tokens, to the consolidated financial statements for further information regarding the Company’s digital tokens.

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.

of revenue also includes compensation and other employee-related costs for technical personnel and subcontracting costs relating to technology

service revenue.

and Marketing

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 the Company’s brands.

Total advertising expense for the year ended December 31, 2020 was

approximately $0.8 million and $1.1 million for the year ended December 31, 2019.

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 the Company’s brands.

Total advertising expense for the year ended December 31, 2021 was approximately $ 1.2

million and $ 0.8 million for the year ended December 31, 2020.

TO CONSOLIDATED FINANCIAL STATEMENTS

development expense, which relates to the development of technology of the Company’s 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.

development expense, which relates to the development of technology of the Company’s 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

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, 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.

Company operates in one reportable segment, and management assesses the Company’s financial performance and makes operating

decisions based on a single operating segment.

Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets

and liabilities for the expected future tax consequences of events that have been included in the financial statements.

this method, the Company determines deferred tax assets and liabilities on the basis of the differences between the financial

statement and tax bases of assets and liabilities by using enacted tax rates in effect for the year in which the differences are

expected to reverse.

The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the

period that includes the enactment date.

Company recognizes deferred tax assets to the extent that the Company believes that these assets are more likely than not to be

In making such a determination, the Company considers all available positive and negative evidence, including future

reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of

recent operations.

If the Company determines that it would be able to realize deferred taxes in the future in excess of their

net recorded amount, the Company would make an adjustment to the deferred tax asset valuation allowance, which would reduce the

provision for income taxes.

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, human resources and facilities costs and fees for other professional

General and administrative expense also includes depreciation of property and equipment and amortization of intangible assets.

Company operates in one reportable segment, and management assesses the Company’s financial performance and makes operating decisions

based on a single operating segment.

Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities

for the expected future tax consequences of events that have been included in the financial statements.

Under this method, the Company

determines deferred tax assets and liabilities on the basis of the differences between the financial statement and tax bases of assets

and liabilities by using enacted tax rates in effect for the year in which the differences are expected to reverse.

The effect of a change

in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.

Company recognizes deferred tax assets to the extent that the Company believes that these assets are more likely than not to be realized.

In making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing

taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations.

If the Company

determines that it would be able to realize deferred taxes in the future in excess of their net recorded amount, the Company would make

an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.

Company records uncertain tax positions in accordance with ASC No.

740, Accounting for Income Taxes (“ASC 740”)

on the basis of a two-step process in which (1) the Company determines whether it is more likely than not that the tax positions

will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not

recognition threshold, the Company recognizes the largest amount of tax benefit that is more than 50 percent likely to be realized

upon ultimate settlement with the related tax authority.

Company recognizes interest and penalties related to unrecognized tax benefits on the income tax expense line in the accompanying

consolidated statement of operations.

Accrued interest and penalties would be included on the related tax liability line in the

accompanying consolidated balance sheets.

740, Accounting for Income Taxes (“ASC 740”) on

the basis of a two-step process in which (1) the Company determines whether it is more likely than not that the tax positions will be

sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition

threshold, the Company recognizes the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate

settlement with the related tax authority.

The Company recognizes interest and penalties

related to unrecognized tax benefits on the income tax expense line in the accompanying consolidated statement of income.

Accrued interest

and penalties would be included on the related tax liability line in the accompanying consolidated balance sheets.

accordance with ASC No.

718, Compensation –

Stock Compensation , the Company measures the compensation costs of stock-based

compensation arrangements based on the grant date fair value of granted instruments and recognizes the costs in the financial

statements over the period during which employees are required to provide services.

Stock-based compensation arrangements include

stock options and restricted stock awards.

718, Compensation – Stock Compensation , the Company measures the compensation costs of stock-based

compensation arrangements based on the grant date fair value of granted instruments and recognizes the costs in the financial statements

over the period during which employees are required to provide services.

Stock-based compensation arrangements include stock options

and restricted stock awards.

TO CONSOLIDATED FINANCIAL STATEMENTS

instruments issued to non-employees are recorded on the basis of the fair value of the instruments, as required by Accounting

Standards Update (“ASU”) No.

2018-07, Compensation —

Stock Compensation (Topic 718) (“ASU 2018-07”).

ASU 2018-07 expands the scope of Topic 718, which currently only includes share-based payments to employees, to include share-based

payments to non-employees for goods or services.

Consequently, the accounting for share-based payments to non-employees and employees

will be substantially aligned.

fair value of each option granted under the Company’s Amended and Restated 2011 Long-Term Incentive Plan (the “2011

Plan”) and 2016 Long-Term Incentive Plan (the “2016 Plan”) was estimated using the Black-Scholes option-pricing

model (see Note 10 for further details).

Using this model, fair value is calculated based on assumptions with respect to the (i)

expected volatility of the Company’s common stock price, (ii) expected life of the award, which for options is the period

of time over which employees and non- employees are expected to hold their options prior to exercise, (iii) expected dividend

yield on the Company’s common stock, and (iv) a risk-free interest rate, which is based on quoted U.S.

Treasury rates for

securities with maturities approximating the expected term.

Expected volatility is estimated based on the Company’s historical

volatilities.

The expected life of options has been determined using the “simplified”

method, which uses the midpoint

between the vesting date and the end of the contractual term.

The expected dividend yield is zero as the Company has never paid

dividends and does not currently anticipate paying dividends in the foreseeable future.

Income (Loss) Per Share

earnings and loss per share are computed by dividing the net income or loss available to common stockholders by the weighted average

number of common shares outstanding during the period as defined by ASC Topic 260, Earnings Per Share .

Diluted earnings

per share is computed using the weighted average number of common shares and, if dilutive, potential common shares outstanding

during the period.

Potential common shares consist of the incremental common shares issuable upon the exercise of stock options

(using the treasury stock method).

To the extent stock options are antidilutive, they are excluded from the calculation of diluted

income (loss) per share.

instruments issued to non-employees are recorded on the basis of the fair value of the instruments, as required by Accounting Standards

Update (“ASU”) No.

2018-07, Compensation — Stock Compensation (Topic 718) (“ASU 2018-07”).

expands the scope of Topic 718, which currently only includes share-based payments to employees, to include share-based payments to non-employees

for goods or services.

Consequently, the accounting for share-based payments to non-employees and employees will be substantially aligned.

fair value of each option granted under the Company’s Amended and Restated 2011 Long-Term Incentive Plan (the “2011 Plan”)

and 2016 Long-Term Incentive Plan (the “2016 Plan”) was estimated using the Black-Scholes option-pricing model (see Note

10 for further details).

Using this model, fair value is calculated based on assumptions with respect to the (i) expected volatility

of the Company’s common stock price, (ii) expected life of the award, which for options is the period of time over which employees

and non- employees are expected to hold their options prior to exercise, (iii) expected dividend yield on the Company’s common

stock, and (iv) a risk-free interest rate, which is based on quoted U.S.

Treasury rates for securities with maturities approximating

the expected term.

Expected volatility is estimated based on the Company’s historical volatilities.

The expected life of options

has been determined using the “simplified” method, which uses the midpoint between the vesting date and the end of the contractual

The expected dividend yield is zero as the Company has never paid dividends and does not currently anticipate paying dividends

in the foreseeable future.

Income Per Share

Basic earnings and net income per share are computed

by dividing the net income available to common stockholders by the weighted average number of common shares outstanding during the period

as defined by ASC Topic 260, Earnings Per Share .

Diluted earnings per share is computed using the weighted average number of common

shares and, if dilutive, potential common shares outstanding during the period.

Potential common shares consist of the incremental common

shares issuable upon the exercise of stock options (using the treasury stock method).

To the extent stock options are antidilutive, they

are excluded from the calculation of diluted income per share.

and Cash Equivalents

Company considers all highly liquid investments with an original maturity of three months or less at the date of purchase to be

cash equivalents.

Company considers all highly liquid investments with an original maturity of three months or less at the date of purchase to be cash

Cash and cash equivalents consist of cash on deposit with banks and money market funds.

The Company maintains

cash in bank accounts which, at times, may exceed federally insured limits.

As part of its cash management process, the Company

periodically reviews the relative credit standing of these banks.

The Company has not experienced any losses in such accounts

and periodically evaluates the credit worthiness of the financial institutions and has determined the credit exposure to be negligible.

receivable are composed of amounts due from our advertising partners and from credit card processing companies following the initiation

of subscription arrangements originated by the Company’s subscribers, which pay by credit card.

These receivables are unsecured

and are typically settled by the payment processing company within several days of transaction processing accordingly, an allowance

for doubtful accounts is considered.

Accounts receivable from advertising partners and payment processing companies amounted to

$71,410 and $130,686 on December 31, 2020 and December 31, 2019, respectively.

of December 31, 2020, three advertising partners accounted for 61% of accounts receivable.

As of December 31, 2019, three advertising

partners accounted for 47% of accounts receivable.

The Company maintains cash in bank

accounts which, at times, may exceed federally insured limits.

As part of its cash management process, the Company periodically reviews

the relative credit standing of these banks.

The Company has not experienced any losses in such accounts and periodically evaluates the

credit worthiness of the financial institutions and has determined the credit exposure to be negligible.

Accounts receivable are composed of amounts due

from our advertising partners and from credit card processing companies following the initiation of subscription arrangements originated

by the Company’s subscribers, which pay by credit card.

These receivables are unsecured and are typically settled by the payment

processing company within several days of transaction processing accordingly, an allowance for doubtful accounts is considered.

receivable from advertising partners and payment processing companies amounted to $ 153,448 and $ 71,410 on December 31, 2021 and December

31, 2020, respectively.

As of December 31, 2021, three advertising partners accounted for 48 %

of accounts receivable.

As of December 31, 2021, the three advertising partners made up 22%, 15 %, and 11 % of accounts receivable, respectively.

TO CONSOLIDATED FINANCIAL STATEMENTS

1 unchanged sentence

and equipment are stated at cost, less accumulated depreciation and amortization.

Depreciation and amortization is calculated

using the straight-line method over the estimated useful lives of those assets, as follows:

and equipment

of estimated useful life or remaining lease term

and maintenance costs are expensed as incurred.

and equipment is evaluated for recoverability whenever events or changes in circumstances indicate that the carrying amounts of

the assets might not be recoverable.

In evaluating an asset for recoverability, the Company estimates the future cash flow expected

to result from the use and eventual disposition of the asset.

If the expected future undiscounted cash flow is less than the carrying

amount of the asset, an impairment loss, equal to the excess of the carrying amount over the fair value of the asset, is recognized.

No impairment losses were recorded on property and equipment for the periods presented in these consolidated financial statements.

Depreciation and amortization are calculated using

the straight-line method over the estimated useful lives of those assets, as follows:

Computers and equipment

Website development

Furniture and fixtures

Leasehold improvements

Shorter of estimated useful life or remaining lease term

Repairs and maintenance costs are expensed

and equipment is evaluated for recoverability whenever events or changes in circumstances indicate that the carrying amounts of the assets

might not be recoverable.

In evaluating an asset for recoverability, the Company estimates the future cash flow expected to result from

the use and eventual disposition of the asset.

If the expected future undiscounted cash flow is less than the carrying amount of the

asset, an impairment loss, equal to the excess of the carrying amount over the fair value of the asset, is recognized.

No impairment

losses were recorded on property and equipment for the periods presented in these consolidated financial statements.

Development Costs

accordance with ASC 350-50, Website Development Costs , the Company accounts for website development costs by capitalizing

qualifying costs which are incurred during the development and infrastructure stage.

Expenses incurred in the planning stage are

expensed as incurred.

Capitalized website development cost is included in property and equipment and are amortized straight-line

over the expected period of benefit, which is three years, when the software is ready for its intended use.

Amortization expense

related to capitalize website development costs is included in product development expense.

is recorded when the purchase price paid for an acquisition exceeds the estimated fair value of the net identified tangible and

intangible assets acquired.

The Company evaluates its goodwill for impairment in accordance with ASC 350, Intangibles –

Goodwill and Other (as amended by ASU 2017-04) , by assessing qualitative factors to determine whether it is more likely than

not (that is, a likelihood of more than 50 percent) that the fair value of a reporting unit is less than its carrying amount,

including goodwill.

The Company performs the quantitative goodwill impairment test, if, after assessing the totality of events

or circumstances such as those described in paragraph ASC 350-20-35-3C(a) through (g), the Company determines that it is more

likely than not that the fair value of a reporting unit is less than its carrying amount.

An impairment charge is recognized for

the amount by which the carrying amount exceeds the reporting unit’s fair value, limited to the total amount of goodwill

related to the reporting unit.

accordance with ASC 350-50, Website Development Costs , the Company accounts for website development costs by capitalizing qualifying

costs which are incurred during the development and infrastructure stage.

Expenses incurred in the planning stage are expensed as incurred.

Capitalized website development cost is included in property and equipment and are amortized straight-line over the expected period of

benefit, which is three years, when the software is ready for its intended use.

Amortization expense related to capitalize website development

costs is included in product development expense.

is recorded when the purchase price paid for an acquisition exceeds the estimated fair value of the net identified tangible and intangible

assets acquired.

The Company evaluates its goodwill for impairment in accordance with ASC 350, Intangibles – Goodwill and Other

(as amended by ASU 2017-04) , by assessing qualitative factors to determine whether it is more likely than not (that is, a likelihood

of more than 50 percent) that the fair value of a reporting unit is less than its carrying amount, including goodwill.

The Company performs

the quantitative goodwill impairment test, if, after assessing the totality of events or circumstances such as those described in paragraph

ASC 350-20-35-3C(a) through (g), the Company determines that it is more likely than not that the fair value of a reporting unit is less

than its carrying amount.

An impairment charge is recognized for the amount by which the carrying amount exceeds the reporting unit’s

fair value, limited to the total amount of goodwill related to the reporting unit.

Company tests the recorded amount of goodwill for impairment on an annual basis on December 31 of each fiscal year or more frequently

1 unchanged sentence

The Company has one reporting unit.

The Company performed a qualitative assessment and concluded that no impairment existed as of December 31, 2020, compared to an

impairment of $6.8 million for the year ended December 31, 2019 (See Note 5 for further details on the impairment recorded for

the year ended December 31, 2019).

Company’s intangible assets represent definite lived intangible assets, which are being amortized on a straight-line basis

over their estimated useful lives as follows:

performed a qualitative assessment and concluded that no impairment existed as of December 31, 2021 and 2020.

Company’s intangible assets represent definite lived intangible assets, which are being amortized on a straight-line basis over

their estimated useful lives as follows:

names, trademarks, product names, URLs

2 unchanged sentences

relationships

Company reviews intangible assets for impairment whenever events or changes in business circumstances indicate that the carrying

amount of the assets might not be recoverable.

Factors that the Company considers in deciding when to perform an impairment review

include significant underperformance of the business in relation to expectations, significant negative industry or economic trends,

and significant changes or planned changes in the use of the assets.

If an impairment review is performed to evaluate a long-lived

asset for recoverability, the Company compares forecasts of undiscounted cash flows expected to result from the use and eventual

disposition of the long-lived asset to its carrying value.

An impairment loss would be recognized when estimated undiscounted

future cash flows expected to result from the use of an asset are less than its carrying amount.

The impairment loss would be

based on the excess of the carrying value of the impaired asset over its fair value, determined based on discounted cash flows.

No impairments were recorded on intangible assets as no impairment indicators were noted for the periods presented in these consolidated

financial statements.

TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2018, the Company accounts for its leases under ASC 842, Leases (“ASC 842”).

Under this guidance,

arrangements meeting the definition of a lease are classified as operating or financing leases and are recorded on the consolidated

balance sheets as both a right of use asset and lease liability, calculated by discounting fixed lease payments over the lease

term at the rate implicit in the lease or the Company’s incremental borrowing rate.

Lease liabilities are increased by interest

and reduced by payments each period, and the right of use asset is amortized over the lease term.

For operating leases, interest

on the lease liability and the amortization of the right of use asset result in straight-line rent expense over the lease term.

Company reviews intangible assets for impairment whenever events or changes in business circumstances indicate that the carrying amount

of the assets might not be recoverable.

Factors that the Company considers in deciding when to perform an impairment review include significant

underperformance of the business in relation to expectations, significant negative industry or economic trends, and significant changes

or planned changes in the use of the assets.

If an impairment review is performed to evaluate a long-lived asset for recoverability,

the Company compares forecasts of undiscounted cash flows expected to result from the use and eventual disposition of the long-lived

asset to its carrying value.

An impairment loss would be recognized when estimated undiscounted future cash flows expected to result

from the use of an asset are less than its carrying amount.

The impairment loss would be based on the excess of the carrying value of

the impaired asset over its fair value, determined based on discounted cash flows.

No impairments were recorded on intangible assets

as no impairment indicators were noted for the periods presented in these consolidated financial statements.

The Company accounts for its leases under ASC

842, Leases (“ASC 842”).

Under this guidance, arrangements meeting the definition of a lease are classified as operating

or financing leases and are recorded on the consolidated balance sheets as both a right of use asset and lease liability, calculated

by discounting fixed lease payments over the lease term at the rate implicit in the lease or the Company’s incremental borrowing

Lease liabilities are increased by interest and reduced by payments each period, and the right of use asset is amortized over the

For operating leases, interest on the lease liability and the amortization of the right of use asset result in straight-line

rent expense over the lease term.

Accounting Pronouncements

December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes , which

is intended to simplify various aspects related to accounting for income taxes.

ASU 2019-12 removes certain exceptions to the

general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application.

is effective for fiscal years beginning after December 15, 2021.

The Company has not early adopted ASU 2019-12 and is currently

evaluating its impact financial position, results of operations, and cash flows.

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

sold substantially all of the assets related to its online dating services business under the domain names FirstMet, 50more, and

The Grade (collectively, the “Dating Services Business”) for a cash purchase price of $1.6 million.

The closing of

the asset sale was effective as of January 31, 2019.

In the first quarter of 2019, management determined

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

Accordingly, the

results of the Dating Services Business are presented as discontinued operations in the Company’s consolidated statements

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

In addition, the assets and liabilities of the Dating Services Business are classified as held for sale in the Company’s

consolidated balance sheets for all periods presented.

following tables summarize the major line items included in loss from discontinued operations for the Dating Services Business

for the periods presented:

and marketing expense

development expense

and administrative expense

from discontinued operations

were no major line items included in loss from discontinued operations for the Dating Services Business for the year ended December

Equipment, Net

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic

Simplifying the Accounting for Income Taxes , which is intended to simplify various aspects related to accounting for income

ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to

improve consistent application.

ASU 2019-12 is effective for fiscal years beginning after December 15, 2021.

On December 1, 2021, the

Company adopted ASU 2019-12 and its adoption did not have any significant impact on the Company’s consolidated financial statements

and related disclosures.

Reclassifications

Certain prior period amounts have been reclassified for comparative

purposes to conform to the current presentation.

These reclassifications have no impact on the previously reported net income.

and Equipment, Net

and equipment, net consisted of the following for the periods presented:

property and equipment

Computer equipment

Website development

Furniture and fixtures

Total property and equipment

Accumulated depreciation

property and equipment, net

Total property and equipment, net

expense, which includes amortization of website development costs, for the years ended December 31, 2021 and 2020 was $ 186,178 and $ 325,044 ,

respectively.

on disposal of property and equipment for the years ended December 31, 2021 and 2020 was $ 0 and $ 39,238 , respectively, as a result from

the termination of one of our office leases.

The Company tests goodwill and indefinite-lived

intangible assets for impairment annually and whenever events or circumstances arise that indicate an impairment may exist.

determined there were no indicators that would lead to a test for impairment during the years ended December 31, 2021 and 2020.

was $ 6,326,250 as of December 31, 2021 and December 31, 2020.

TO CONSOLIDATED FINANCIAL STATEMENTS

expense, which includes amortization of website development costs, for the years ended December 31, 2020 and 2019 was $325,044

and $349,082, respectively.

on disposal of property and equipment for the years ended December 31, 2020 and 2019 was $39,238 and $0, respectively, as a result

from the termination of one of our office leases.

Company tests goodwill and indefinite-lived intangible assets for impairment annually and whenever events or circumstances arise

that indicate an impairment may exist.

Company recorded $6,760,222 of goodwill impairment for the year ended December 31, 2019 due to a sustained decrease in market

price per share of the Company’s common stock.

At December 31, 2019, the market price per share of the Company’s common

stock declined to $1.29, and as such, the Company tested for an impairment and concluded that its goodwill should be reduced as

result of the decline in the market price per share and fair value of the reporting unit.

Company determined there were no indicators that would lead to a test for impairment during the year ended December 31, 2020.

Goodwill was $6,326,250 at December 31, 2020 and December 31, 2019.

Intangible Assets,

assets, net consisted of the following for the periods presented:

4 unchanged sentences

intangible assets

$ (4,492,790 )

$ (4,246,109 )

expense for the years ended December 31, 2020 and 2019 was $246,681 and $256,332, respectively.

The aggregate amortization expense

for each of the next five years and thereafter is estimated to be $184,667 in 2021, $149,944 in 2022, $18,000 in 2023, $17,354

in 2024, $2,500 in 2025 and $8,745 thereafter.

Digital Tokens

December 31, 2019, digital tokens consisted of XPX tokens received in connection with the ProximaX Agreement.

At December 31,

2020, digital tokens and digital tokens receivable consist of Props tokens received in connection with the YouNow Agreement.

that there is limited precedent regarding the classification and measurement of cryptocurrencies and other digital tokens under

current GAAP, the Company has determined to account for these tokens as indefinite-lived intangible assets in accordance with

ASC 350, Intangibles-Goodwill and Other until further guidance is issued by the FASB.

to September 2019, the fair value of the Company’s XPX tokens had been based on

the quoted market prices for the XPX tokens (Level 1 inputs).

In September 2019, the

Kryptono Exchange announced that as part of its periodic review of its listed digital

assets it was determined that ProximaX no longer met its standards for continued listing.

Accordingly, it delisted and ceased trading for XPX tokens on October 4, 2019.

the value of XPX as listed on other exchanges had declined significantly, the Company

recorded an impairment charge in the amount of $625,368 which is reported as a component

of other income and expenses in the accompanying consolidated statements of operations

for the year ended December 31, 2019.

TO CONSOLIDATED FINANCIAL STATEMENTS

the year ended December 31, 2020, the Company sold 124,752,914 digital tokens for proceeds of $75,406.

The recorded loss of approximately

$72,800 is included under other expense, net in the consolidated statements of operations.

Props tokens received and receivable from YouNow are intangible assets that are accounted for at cost, less impairment charges.

According to the guidance, a holder of utility tokens cannot only compare the carrying value to fair value at the reporting period,

but instead must assess impairment daily.

As a result, the Company uses the amount equal the lowest price during the period in

which the Props tokens are held as the carrying amount for purposes of testing for impairment.

calculate the fair value of the Props tokens received and receivable pursuant to the YouNow Agreement, the Company, through a

third-party valuation, used the backsolve method, which utilizes the option pricing method to calculate the implied value of the

Props tokens based on the most recent transaction price publicly available (Level 3 inputs).

For purposes of the Backsolve method,

the Company used a precedent transaction in which Props tokens were purchased at a price of $0.07 per Props token.

The precedent

transaction also included the issuance of warrants to purchase additional Props tokens at a strike price of $0.07 per Props token.

Amortization expense for the years ended December

31, 2021 and 2020 was $ 184,667 and $ 246,681 , respectively.

The aggregate amortization expense for each of the next three years and thereafter

is estimated to be $ 149,944 in 2022, $ 18,000 in 2023, $ 17,349 in 2024 and $ 11,250 thereafter.

tokens, digital tokens receivable and digital tokens payable for the periods presented consist of Props tokens received in connection

with the YouNow Agreement.

Given that there is limited precedent regarding the classification and measurement of cryptocurrencies and

other digital tokens under current GAAP, the Company has determined to account for these tokens as indefinite-lived intangible assets

in accordance with ASC 350, Intangibles-Goodwill and Other until further guidance is issued by the FASB.

Props tokens received, receivable and payable from YouNow are intangible assets that are accounted for at cost, less impairment charges.

According to the FASB guidance noted above, a holder of utility tokens cannot only compare the carrying value to fair value at the reporting

period, but instead must assess impairment daily.

As a result, the Company uses the amount equal to the lowest price during the period

in which the Props tokens are held as the carrying amount for purposes of testing for impairment.

the year ended December 31, 2020, to calculate the fair value of the Props tokens received, receivable and payable pursuant to the YouNow

Agreement, the Company, through a third-party valuation, used the Backsolve method, which utilizes the option pricing method to calculate

the implied value of the Props tokens based on the most recent transaction price publicly available (Level 3 inputs).

For purposes of

the Backsolve method, the Company used a precedent transaction in which Props tokens were purchased at a price of $ 0.07 per Props token.

The precedent transaction also included the issuance of warrants to purchase additional Props tokens at a strike price of $ 0.07 per Props

Using the Backsolve method, the Company took into account the strike price of the warrants issued in the precedent transaction

1 unchanged sentence

implied fair value of the Props tokens represents a marketable basis of value.

As the Props tokens do not currently have access

to a liquid marketplace, a discount for lack of marketability was applied to the implied fair value using a protective put calculation.

A summary of the key inputs used in the Backsolve model at December 31, 2020 are summarized as follows:

(time until an exit or liquidity)

free rate of return

basic logic of the protective put approach is supported by the notion that the holder of a non-marketable security can effectively

purchase liquidity by purchasing a put option on the security.

Therefore, the non-marketable value of a security is its value

on a marketable basis, less the value of the hypothetical put option.

The put option calculation relies on the Black-Scholes option

pricing model, which utilizes volatility from comparable utility tokens, an estimated time to maturity (or liquidity), and the

risk-free rate commensurate with that maturity.

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.

At December 31, 2020, the Company recorded

$439,145 under digital tokens, $123,397 under digital tokens payable and $210,000 under digital tokens receivable pursuant to

the YouNow Agreement.

March 27, 2020, the CARES Act was enacted in response to COVID-19 pandemic.

Under ASC 740, the effects of changes in tax rates

and laws are recognized in the period which the new legislation is enacted.

The CARES Act made various tax law changes including

among other things (i) increasing the limitation under IRC Section 163(j) for 2019 and 2020 to permit additional expensing of

interest, (ii) enacting a technical correction so that qualified improvement property can be immediately expensed under IRC Section

168(k), (iii) making modifications to the federal net operating loss rules including permitting federal net operating losses incurred

in 2018, 2019, and 2020 to be carried back to the five preceding taxable years in order to generate a refund of previously paid

income taxes and (iv) enhancing recoverability of AMT tax credits.

Given the Company’s full valuation allowance position,

the CARES Act did not have a material impact on the financial statements.

As the Props tokens do not currently have access to a

liquid marketplace, a discount for lack of marketability was applied to the implied fair value using a protective put calculation.

summary of the key inputs used in the Backsolve model at December 31, 2020 are summarized as follows:

Maturity (time until an exit or liquidity)

Risk free rate of return

basic logic of the protective put approach is supported by the notion that the holder of a non-marketable security can effectively purchase

liquidity by purchasing a put option on the security.

Therefore, the non-marketable value of a security is its value on a marketable

basis, less the value of the hypothetical put option.

The put option calculation relies on the Black-Scholes option pricing model, which

utilizes volatility from comparable utility tokens, an estimated time to maturity (or liquidity), and the risk-free rate commensurate

with that maturity.

TO CONSOLIDATED FINANCIAL STATEMENTS

Company’s provision for income taxes is comprised of the following:

Provision (Benefit)

2020, the Company recorded an income tax provision of $387 for state and local taxes.

In 2019, as a result of the gain recorded

in discontinued operations related to the sale of the Dating Services Business, the Company recorded an income tax benefit of

$159,265 from continuing operations pursuant to the intra-period allocation guidance in ASC 740-20-45-7 which was partially offset

by an income tax provision of $17,672 for state and local taxes.

The Company also recorded an income tax expense of $159,265 allocated

to discontinued operations.

tokens earned, receivable or payable before June 30, 2020, were recorded based on an estimated fair value of $ 0.02 .

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 .

December 31, 2020, the Company recorded $ 439,145 under digital tokens, $ 123,397 under digital tokens payable and $ 210,000 under digital

tokens receivable.

the recent trading availability of Props tokens in various active markets, during the year ended December 31, 2021, the Company calculated

the fair value of digital tokens based on the observable daily quoted market prices (Level 1 inputs) on multiple international exchanges,

as recorded on CoinmarketCap.

At December 31, 2021, the Company recorded $ 7,262 under digital tokens.

During the year ended December 31, 2021, the Company

recorded a non-cash impairment charge in the amount of $ 765,232 , which is reported in the accompanying consolidated statements of income

as a result of recent declines in the quoted market prices of certain digital tokens below the market price of their acquisition.

In August 2021, the Company received notice from

YouNow that it was terminating the YouNow Agreement, and that it would not support the Props platform past the end of calendar year 2021.

In connection with the notice of termination and in accordance with the YouNow Agreement, the Company received an additional 2,625,000

Props tokens.

As a result of the termination of the YouNow Agreement, the Company notified its users that it would no longer be issuing

Props starting October 15, 2021 and would be replacing any user’s outstanding Props with a new internal rewards program.

year the ended December 31, 2021, the Company sold approximately 36.9 million Props tokens for proceeds $ 0.9 million.

The realized gain

of the sale of digital tokens was approximately $ 307,934 for the year ended December 31, 2021 and is included in the consolidated statements

On March 27, 2020, the CARES Act was enacted in

response to COVID-19 pandemic.

Under ASC 740, the effects of changes in tax rates and laws are recognized in the period which the new

legislation is enacted.

The CARES Act made various tax law changes including among other things (i) increased the limitation under IRC

Section 163(j) for 2019 and 2020 to permit additional expensing of interest (ii) enacted a technical correction so that qualified improvement

property can be immediately expensed under IRC Section 168(k), (iii) made modifications to the federal net operating loss rules including

permitting federal net operating losses incurred in 2018, 2019, and 2020 to be carried back to the five preceding taxable years in order

to generate a refund of previously paid income taxes and (iv) enhanced recoverability of AMT tax credits.

Given the Company’s full

valuation allowance position, the CARES Act did not have a material impact on the financial statements.

Company’s provision for income taxes is comprised of the following:

Total Current

State and local

in Valuation Allowance

Total Deferred

Total Provision (Benefit)

TO CONSOLIDATED FINANCIAL STATEMENTS

income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial

reporting purposes and the amounts used for income tax purposes.

Significant components of the Company’s deferred tax assets

and liabilities are as follows:

operating losses

of Intangible Assets

Valuation Allowance:

Significant components of the Company’s deferred tax assets and

liabilities are as follows:

Deferred Tax Assets:

Tax Liabilities:

and equipment

Net operating

Share-based compensation

Amortization of Intangible

Valuation Allowance:

( 5,713,490 )

( 5,903,825 )

Total Deferred Tax Assets

Deferred Tax Liabilities:

Deferred Tax Assets

assessing the Company’s ability to recover its deferred tax assets, the Company evaluated whether it is more likely than

not that some portion or the entire deferred tax asset will be realized.

The ultimate realization of deferred tax assets is dependent

upon the generation of future taxable income in those periods in which temporary differences become deductible and/or net operating

losses can be utilized.

The Company considered all positive and negative evidence when determining the amount of the net deferred

tax assets that are more likely than not to be realized.

This evidence includes, but is not limited to, historical earnings, scheduled

reversal of taxable temporary differences, tax planning strategies and projected future taxable income.

Based on these factors

including cumulative losses in recent years, the Company determined that its deferred tax assets are not realizable on a more-likely-than-not

basis and has recorded a valuation allowance against its net deferred tax assets.

The Company’s valuation allowance decreased

by $446,075 during 2020.

The Company will continue to evaluate its deferred tax assets to determine whether any changes in circumstances

could affect the realization of their future benefit.

If it is determined in future periods that portions of the Company’s

deferred income tax assets satisfy the realization standards, the valuation allowance will be reduced accordingly.

TO CONSOLIDATED FINANCIAL STATEMENTS

and equipment

Total Deferred Tax Liabilities

Net Deferred Tax Assets

In assessing the Company’s ability to recover

its deferred tax assets, the Company evaluated whether it is more likely than not that some portion or the entire deferred tax asset will

The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income in those periods

in which temporary differences become deductible and/or net operating losses can be utilized.

The Company considered all positive and

negative evidence when determining the amount of the net deferred tax assets that are more likely than not to be realized.

This evidence

includes, but is not limited to, historical earnings, scheduled reversal of taxable temporary differences, tax planning strategies and

projected future taxable income.

Based on these factors including cumulative losses in recent years, the Company determined that its deferred

tax assets are not realizable on a more-likely-than-not basis and has recorded a valuation allowance against its net deferred tax assets.

The Company’s valuation allowance decreased by $ 190,335 during 2021.

The Company will continue to evaluate its deferred tax assets

to determine whether any changes in circumstances could affect the realization of their future benefit.

If it is determined in future

periods that portions of the Company’s deferred income tax assets satisfy the realization standards, the valuation allowance will

be reduced accordingly.

of December 31, 2021, the Company has U.S.

federal net operating loss carryforwards of approximately $18.3 million, of which $14.4

million may be subject to a significant annual limitation under Section 382 of the Internal Revenue Code.

Of the $18.3 million,

approximately, $17.1 million will expire in 2030 to 2037, if not utilized.

The remaining $1.2 million may be carried forward indefinitely.

Company’s effective tax rate differs from the U.S.

federal net operating loss carryforwards of approximately $ 17.4 million, of which $13.1 million

may be subject to an annual limitation under Section 382 of the Internal Revenue Code.

Of the $17.4 million, approximately, $16.2 million

are available to offset 100% of future taxable income but expire in varying amounts between 2030 to 2037, if not utilized.

The remaining

$1.2 million is available to offset 80% of future taxable income but may be carried forward indefinitely.

Company’s effective tax rate differs from the U.S.

federal statutory income tax rate of 21 % for 2021 and 2020 as follows:

statutory rate

and local taxes

tax adjustment

tax (expense) benefit at federal statutory rate

State and local taxes

Valuation allowance

Deferred tax adjustment

Share based compensation

Company applies the applicable authoritative guidance which prescribes a comprehensive model for the manner in which a company

should recognize, measure, present and disclose in its financial statements all material uncertain tax positions that the Company

has taken or expects to take on a tax return.

PPP Loan Forgiveness

Company applies the applicable authoritative guidance which prescribes a comprehensive model for the manner in which a company should

recognize, measure, present and disclose in its financial statements all material uncertain tax positions that the Company has taken

or expects to take on a tax return.

As of December 31, 2021, the Company has no uncertain tax positions.

As such, there

are no uncertain tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly

increase or decrease within twelve months from December 31, 2020.

Company files a federal income tax return and income tax returns in various state tax jurisdictions.

The open tax years for the

federal income tax return is 2017 through 2020.

As such, there are no uncertain

tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly increase or

decrease within twelve months from December 31, 2021.

The Company files a federal income tax return

and income tax returns in various state tax jurisdictions.

The open tax years for the federal income tax return are 2018 through 2021.

The state income tax returns have varying statutes of limitations.

years relating to any of the Company’s federal and state net operating losses begin in 2009.

Accrued Expenses

and Other Current Liabilities

expenses and other current liabilities consisted of the following for the periods presented:

Compensation,

benefits and payroll taxes

accrued expenses

accrued expenses and other current liabilities

The open tax years relating to any of the Company’s federal and

state net operating losses begin in 2011.

TO CONSOLIDATED FINANCIAL STATEMENTS

Stockholders’

2011 Plan was terminated as to future awards on May 16, 2016.

A total of 121,930 shares of the Company’s common stock may

be issued pursuant to outstanding options awarded under the 2011 Plan;

however, no additional awards may be granted under such

The 2016 Plan was adopted by the Company’s stockholders on May 16, 2016 and permits the Company to award stock options

(both incentive stock options and non-qualified stock options), stock appreciation rights, restricted stock, restricted stock

units, performance awards, dividend equivalent rights, and other stock-based awards and cash-based incentive awards to its employees

(including an employee who is also a director or officer under certain circumstances), non-employee directors and consultants.

The maximum number of shares of common stock that may be issued pursuant to awards under the 2016 Plan is 1,300,000 shares, 100%

of which may be issued pursuant to incentive stock options.

In addition, the maximum number of shares of common stock that may

be issued under the 2016 Plan may be increased by an indeterminate number of shares of common stock underlying outstanding awards

issued under the 2011 Plan that are forfeited, expired, cancelled or settled in cash.

As of December 31, 2020, there were 853,999

shares available for future issuance under the 2016 Plan.

April 29, 2019, the Company implemented a stock repurchase plan to repurchase up to $500,000 of its common stock for cash.

repurchase plan expired on April 29, 2020.

The Company had purchased 9,950 shares of its common stock under the repurchase plan

as of April 29, 2020 and has classified them as treasury shares on the Company’s consolidated balance sheets.

issued for consulting services

August 11, 2020, the Company issued 37,500 shares of its common stock to a consultant as consideration for investor relations

The total expense for these grants was $43,500 and is included in general and administrative expense in the consolidated

statements of operations.

Expenses and Other Current Liabilities

expenses and other current liabilities consisted of the following for the periods presented:

Compensation, benefits and payroll taxes

Other accrued expenses

Total accrued expenses and other current liabilities

Stockholders’

Paltalk, Inc.

Amended and Restated 2011 Long-Term Incentive Plan (the “2011 Plan”) was terminated as to future awards on

May 16, 2016.

A total of 121,930 shares of the Company’s common stock may be issued pursuant to outstanding options awarded under

the 2011 Plan;

however, no additional awards may be granted under such plan.

The Paltalk, Inc.

2016 Long-Term Incentive Plan (“the

2016 Plan”) was adopted by the Company’s stockholders on May 16, 2016 and permits the Company to award stock options (both

incentive stock options and non-qualified stock options), stock appreciation rights, restricted stock, restricted stock units, performance

awards, dividend equivalent rights, and other stock-based awards and cash-based incentive awards to its employees (including an employee

who is also a director or officer under certain circumstances), non-employee directors and consultants.

The maximum number of shares

of common stock that may be issued pursuant to awards under the 2016 Plan is 1,300,000 shares, 100 % of which may be issued pursuant to

incentive stock options.

In addition, the maximum number of shares of common stock that may be issued under the 2016 Plan may be increased

by an indeterminate number of shares of common stock underlying outstanding awards issued under the 2011 Plan that are forfeited, expired,

cancelled or settled in cash.

As of December 31, 2021, there were 978,359 shares available for future issuance under the 2016 Plan.

2021 Underwritten Public Offering

August 5, 2021, the Company announced the pricing and closing of an underwritten public offering (the “August 2021 Offering”),

in which the Company sold an aggregate of 1,333,310 shares of the Company’s common stock (which includes 173,910 shares sold to

the underwriter pursuant to the full exercise of the underwriter’s over-allotment option) at a public offering price of $ 3.00 per

The August 2021 Offering was made pursuant to the Company’s Registration Statement on Form S-1 (Registration No.

initially filed with the SEC on June 11, 2021, and was subsequently amended and declared effective on August 2, 2021.

Gross proceeds received by the Company from the August 2021 Offering

were approximately $ 4.0 million, before deducting underwriting discounts and commissions and other estimated offering expenses of approximately

These costs were recorded in stockholders’ equity as a reduction of additional paid-in capital in connection with Staff

Accounting Bulletin Topic 5A.

connection with the August 2021 Offering, the Company’s common stock was approved for listing on The Nasdaq Capital Market under

the symbol “PALT” and began trading on The Nasdaq Capital Market on August 3, 2021.

2021 Underwritten Public Offering

October 19, 2021, we announced the pricing and closing of an underwritten public offering of an aggregate of 1,552,500 shares of our

common stock (which includes 202,500 shares sold to the underwriter pursuant to the full exercise of the underwriter’s over-allotment

option) at a public offering price of $ 7.50 per share (the “October 2021 Offering”).

The October 2021 Offering was made pursuant

to an effective shelf Registration Statement on Form S-3 (Registration No.

333-260063), previously filed with the SEC on October 5, 2021

and declared effective on October 14, 2021.

The October 2021 Offering was offered by means of a prospectus supplement and accompanying

prospectus, forming part of the registration statement.

Gross proceeds received by the Company from the October 2021 Offering

were approximately $ 11.6 million, before deducting underwriting discounts and commissions and other estimated offering expenses of approximately

These costs were recorded in stockholders’ equity as a reduction of additional paid-in capital in connection with Staff

Accounting Bulletin Topic 5A.

following table summarizes the assumptions used in the Black-Scholes pricing model to estimate the fair value of the options granted

during the years ended:

Expected volatility

178.0 – 197.0

life of option

free interest rate

dividend yield

expected life of the options is the period of time over which employees and non-employees are expected to hold their options prior

The expected life of options has been determined using the “simplified”

method as prescribed by Staff

Accounting Bulletin 110, which uses the midpoint between the vesting date and the end of the contractual term.

The volatility

of the Company’s common stock is calculated using the Company’s historical volatilities beginning at the grant date

and going back for a period of time equal to the expected life of the award.

The Company estimates potential forfeitures of stock

awards and adjusts recorded stock-based compensation expense accordingly.

The Company estimates pre-vesting forfeitures primarily

based on the Company’s historical experience and is adjusted to reflect actual forfeitures as the stock-based awards vest.

following tables summarize stock option activity during the year ended December 31, 2020:

at January 1, 2020

during period

or canceled, during the period

during the period

at December 31, 2020

Expected life of option

Risk free interest rate

Expected dividend yield

TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2020, there was $128,879 of total unrecognized compensation expense related to stock options, which is expected to

be recognized over a weighted average period of 2.01 years.

December 31, 2020, the aggregate intrinsic value of stock options that were outstanding and exercisable was $15,840.

31, 2019, there was no aggregate intrinsic value of stock options that were outstanding and exercisable.

expected life of the options is the period of time over which employees and non-employees are expected to hold their options prior to

The expected life of options has been determined using the “simplified” method as prescribed by Staff Accounting

Bulletin 110, which uses the midpoint between the vesting date and the end of the contractual term.

The volatility of the Company’s

common stock is calculated using the Company’s historical volatilities beginning at the grant date and going back for a period

of time equal to the expected life of the award.

The Company estimates potential forfeitures of stock awards and adjusts recorded stock-based

compensation expense accordingly.

The Company estimates pre-vesting forfeitures primarily based on the Company’s historical experience

and is adjusted to reflect actual forfeitures as the stock-based awards vest.

following tables summarize stock option activity during the year ended December 31, 2021:

Outstanding at January 1, 2021

Exercised during period

Forfeited or canceled, during the period

Expired, during the period

Outstanding at December 31, 2021

Exercisable at December 31, 2021

At December 31, 2021, there was $ 71,222 of total unrecognized

compensation expense related to stock options, which is expected to be recognized over a weighted average period of 1.96 years.

On December 31, 2021, the aggregate intrinsic

value of stock options that were outstanding and exercisable was $ 149,394 and $ 109,644 , respectively.

On December 31, 2020, the aggregate

intrinsic value of stock options that were outstanding and exercisable was $ 15,840 and $ 15,840 , respectively.

The intrinsic value for

stock options is calculated based on the exercise price of the underlying awards and the fair value of such awards as of the period-end

the year ended December 31, 2020, the Company granted options to the Company’s board of directors to purchase an aggregate

of 24,000 shares of common stock.

These options vest over one year and have a term of ten years and have a weighted average exercise

price of $0.80.

aggregate fair value for the options granted during the years ended December 31, 2020 and 2019 was $18,664 and $469,179, respectively.

compensation expense for the Company’s stock options included in the consolidated statements of operations was as follows:

and marketing expense

development expense

and administrative expense

stock-based compensation expense

Net Income (Loss)

earnings and loss per share are computed by dividing the net income or loss available to common stockholders by the weighted average

number of common shares outstanding during the period as defined by ASC Topic 260, Earnings Per Share .

Diluted earnings

per share is computed using the weighted average number of common shares and, if dilutive, potential common shares outstanding

during the period.

Potential common shares consist of the incremental common shares issuable upon the exercise of stock options

(using the treasury stock method).

To the extent stock options are antidilutive, they are excluded from the calculation of diluted

income (loss) per share.

For the year ended December 31, 2020, 618,918 of shares issuable upon the exercise of outstanding stock

options were not included in the computation of diluted net income per share for continuing operations because their inclusion

would be antidilutive.

For the year ended December 31, 2020, 3,118 of shares issuable upon the exercise of outstanding stock options

were included in the computation of diluted net income per share for continuing operations because their inclusion would be dilutive.

For the year ended December 31, 2019, 1,021,243 of shares issuable upon the exercise of outstanding stock options were not included

in the computation of diluted net income (loss) per share for continuing operations because their inclusion would be antidilutive.

the year ended December 31, 2021, the Company granted stock options to members of the Board of Directors to purchase an aggregate of

24,000 shares of common stock at an exercise price of $ 3.20 per share.

The stock options vest in four equal quarterly installments on

the last day of each calendar quarter in 2021 and have a term of ten years .

During the year ended December 31, 2021, the Company also

granted options to employees to purchase an aggregate of 13,932 shares of common stock.

These options have a vesting date ranging between

the grant date and up to four years, have a term of ten years and have an exercise price of $ 3.20 to $ 4.90 .

The aggregate fair value for the options granted during the years ended

December 31, 2021 and 2020 was $ 145,522 and $ 18,664 , respectively.

Stock-based compensation expense for the Company’s stock options

included in the consolidated statements of income was as follows:

Cost of revenue

Sales and marketing expense

Product development expense

General and administrative expense

Total stock-based compensation expense

On April 29, 2019, the Company implemented a stock

repurchase plan to repurchase up to $ 500,000 of its common stock for cash.

The repurchase plan expired on April 29, 2020 .

had purchased 9,950 shares of its common stock under the repurchase plan as of April 29, 2020 and has classified them as treasury shares

on the Company’s consolidated balance sheets.

In addition, the Company retained 22,013 in treasury shares as part of a net share

exercise of stock options by former employees.

As of December 31, 2021, the Company had 31,963 shares of its common stock classified as

treasury shares on the Company’s consolidated balance sheets.

TO CONSOLIDATED FINANCIAL STATEMENTS

following table summarizes the net income (loss) per share calculation for the periods presented:

Net income (loss) from continuing

operations –

Income Per Share

Basic earnings and net income per share are computed

by dividing the net income available to common stockholders by the weighted average number of common shares outstanding during the period

as defined by ASC Topic 260, Earnings Per Share .

Diluted earnings per share is computed using the weighted average number of common

shares and, if dilutive, potential common shares outstanding during the period.

Potential common shares consist of the incremental common

shares issuable upon the exercise of stock options (using the treasury stock method).

To the extent stock options are antidilutive, they

are excluded from the calculation of diluted income per share.

For the year ended December 31, 2021, 392,749 of shares issuable upon the

exercise of outstanding stock options were not included in the computation of diluted net income per share from operations because their

inclusion would be antidilutive.

For the year ended December 31, 2021, 43,021 shares issuable upon the exercise of outstanding stock options

were included in the computation of diluted net income per share from operations because their inclusion would be dilutive.

ended December 31, 2020, 618,918 of shares issuable upon the exercise of outstanding stock options were not included in the computation

of diluted net income per share for operations because their inclusion would be antidilutive.

For the year ended December 31, 2020, 3,118

of shares issuable upon the exercise of outstanding stock options were included in the computation of diluted net income per share for

operations because their inclusion would be dilutive.

following table summarizes the net income per share calculation for the periods presented:

Net income from operations –

basic and diluted

Total weighted average shares outstanding –

Dilutive potential options

Total weighted average shares outstanding –

Weighted average shares outstanding – basic

Weighted average shares outstanding –

Per share data:

Basic from continuing operations

Diluted from continuing operations

June 7, 2016, the Company entered into a lease agreement with Jericho Executive Center LLC for office space at 30 Jericho Executive

Plaza in Jericho, New York, which commenced on September 1, 2016 and runs through November 30, 2021.

The Company’s monthly

office rent payments under the lease are currently approximately $5,900 per month.

May 1, 2019, the Company 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 the Company $11,164 per month.

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

On June 18, 2020, the Company entered into an agreement to terminate the sublease

for this office space.

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

TO CONSOLIDATED FINANCIAL STATEMENTS

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 ran until April 26, 2023.

The Company’s

monthly office rent payments under the lease were approximately $33,492 per month.

On June 22, 2020, the Company entered into

an agreement to terminate the lease for this office space.

Pursuant to the terms of the agreement, the Company vacated the offices

on June 30, 2020 and the Company agreed to forfeit its security deposit of $133,968.

accordance with ASC 842, the Company accounted for the cancellation of the lease by removing the right-of-use asset and the lease

liability from the consolidated balance sheets, with a profit recognized for the difference.

The Company recorded a net gain on

the office lease cancellation of $141,001, which is reflected in the consolidated statements of operations for the year ended

December 31, 2020.

Basic from operations

Diluted from operations

June 7, 2016, the Company entered into a lease agreement with Jericho Executive Center LLC for office space at 30 Jericho Executive Plaza

in Jericho, New York, which commenced on September 1, 2016 and runs through November 30, 2021.

The Company’s monthly office rent

payments under the lease are currently approximately $ 7,081 per month.

On April 9, 2021, the Company entered into a lease extension agreement

with Jericho Executive Center LLC for the office space at 30 Jericho Executive Plaza in Jericho, New York, which commenced on December

1, 2021 and runs through November 30, 2024.

The modification resulted in an increase its ROU assets and lease liabilities of $ 0.2 million,

using a discount rate of 2.30 %.

of December 31, 2021, the Company had no long-term leases that were classified as financing leases.

As of December 31, 2020, the

Company did not have additional operating and financing leases that had not yet commenced.

December 31, 2020, the Company had operating lease liabilities of approximately $0.1 million and right-of-use assets of approximately

$0.1 million, which are included in the consolidated balance sheets.

As of December 31, 2021, the Company

did not have additional operating and financing leases that had not yet commenced.

December 31, 2021, the Company had operating lease liabilities of approximately $ 239,000 and right-of-use assets of approximately $ 239,000 ,

which are included in the consolidated balance sheets.

Total rent expense for the year ended December

31, 2021 was $ 84,525 , of which $ 4,500 was sublease income.

Total rent expense for the year ended December 31, 2019 was $394,636.

Rent expense is recorded under general and administrative expense in the consolidated statements of operations.

following table summarizes the Company’s operating leases for the periods presented:

paid for amounts included in the measurement of operating lease liabilities:

average assumptions:

December 31, 2020, future minimum payments under non-cancelable operating leases were as follows:

the years ending December 31,

present value adjustment

value of minimum lease payments

April 13, 2020, to help ensure adequate liquidity in light of the uncertainties posed by the coronavirus pandemic, the Company

applied for a loan under the SBA Paycheck Protection Program under the recently enacted CARES Act.

On May 3, 2020, the Company

entered into the Note in favor of the Lender.

Total rent expense for year ended December 31, 2020 was $ 206,347 , of which

$ 36,095 was sublease income.

Rent expense is recorded under general and administrative expense in the consolidated statements of income.

TO CONSOLIDATED FINANCIAL STATEMENTS

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.

The Company did not provide any collateral or guarantees for the Note, nor did the

Company pay any facility charge to obtain the Note.

The Note provides for customary events of default, including, among others,

those relating to failure to make payment, bankruptcy, breaches of representations and material adverse effects.

The Company may

prepay the principal of the Note at any time without incurring any prepayment charges.

Note may be partially or fully forgiven if the Company complies with the provisions of the CARES Act, including the use of Note

proceeds for payroll costs, rent, utilities and certain other expenses as defined in the CARES Act.

Any forgiveness of the Note

will be subject to approval by the SBA and the Lender.

Total term debt

portion of term debt

Non-current portion

following table summarizes the Company’s operating leases for the periods presented:

Cash paid for amounts included

in the measurement of operating lease liabilities:

Weighted average assumptions:

Remaining lease term

Discount rate

of December 31, 2021, future minimum payments under non-cancelable operating leases were as follows:

For the years ending December 31,

present value adjustment

Present value of minimum lease payments

April 13, 2020, to help ensure adequate liquidity in light of the uncertainties posed by the coronavirus pandemic, the Company applied

for a loan under the SBA PPP under the CARES Act.

On May 3, 2020, the Company entered into the Note in favor of the Lender.

Note had an aggregate principal amount of $506,500, a two-year term, a maturity date of May 3, 2022 and borne interest at a stated rate

of 1.0% per annum.

The Company did not provide any collateral or guarantees for the Note, nor did the Company pay any facility charge

to obtain the Note.

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.

January 13, 2021, the Note was fully forgiven by the SBA and the Lender in compliance with the provisions of the CARES Act.

Commitments and

contingencies

December 16, 2016, a wholly owned subsidiary of the Company, Paltalk Holdings, Inc., filed a patent infringement lawsuit in Delaware

against Riot Games, Inc.

and Valve Corporation for infringement of U.S.

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

online games League of Legends and Defense of the Ancients 2.

These two patents were previously asserted against, and then licensed

to, Microsoft, Sony, and Activision.

In 2018, Valve Corporation moved to transfer the litigation from Delaware to the Western

District of Washington.

Such motion was granted by the court.

and Contingencies

On July 23, 2021, a wholly

owned subsidiary of the Company, Paltalk Holdings, Inc., filed a patent infringement lawsuit against WebEx Communications, Inc., Cisco

WebEx LLC, and Cisco Systems, Inc.

(collectively, “Cisco”), in the U.S.

District Court for the Western District of Texas.

The Company alleges that Cisco’s Webex products have infringed U.S.

6,683,858, and that the Company is entitled to damages.

A Markman hearing took place on February 24, 2022 and a trial is scheduled for early 2023.

Company may be included in legal proceedings, claims and assessments arising in the ordinary course of business.

The Company evaluates

the need for a reserve for specific legal matters based on the probability of an unfavorable outcome and the reasonability of

an estimable loss.

the need for a reserve for specific legal matters based on the probability of an unfavorable outcome and the reasonability of an estimable

No reserve was deemed necessary as of December 31, 2021.

Sale of Secured

Communications Assets

February 24, 2020, the Company 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 the Company

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.

On July 23, 2020, the Company 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 was recorded under other current assets

in the consolidated balance sheets as of December 31, 2020.

The Amended and Restated Agreement also provides for a revenue sharing

arrangement, pursuant to which the Company is 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 gain on the Asset

Sale was recorded in the statements of operations for the year ended December 31, 2020.

The sale of the Secured Communications

Assets did not meet the requisite criteria to constitute discontinued operations or held for sale, as the historical results of

Company’s secured communications business were not material to its results of operations.

Subsequent Events

January 13, 2021, the Note, with an aggregate principal amount of $506,500 was fully forgiven by the SBA and the Lender in compliance

with the provisions of the CARES Act.

has evaluated subsequent events or transactions occurring through the date the consolidated financial statements were issued and

determined that no other events or transactions are required to be disclosed herein.

CHANGES IN AND

DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

On January 28, 2022, the Board of Directors

approved the issuance of 145,000 stock options to employees of the Company.

has evaluated subsequent events or transactions occurring through the date the consolidated financial statements were issued and determined

that no other events or transactions are required to be disclosed herein.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

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 8. Financial Statements and Supplementary Data