Item 9A. Controls and Procedures
ITEM
9A. CONTROLS AND PROCEDURES
Evaluation
of Disclosure Controls and Procedures
Disclosure
controls are procedures that are designed with the objective of ensuring that information required to be disclosed in our reports filed
under the Exchange Act, such as this Annual Report on Form 10-K, is recorded, processed, summarized and reported within the time periods
specified in the SEC’s rules and forms. Disclosure controls are also designed with the objective of ensuring that such information
is accumulated and communicated to our management, including the Principal Executive Officer and Principal Financial Officer, as appropriate,
to allow timely decisions regarding required disclosure. Internal controls are procedures which are designed with the objective of providing
reasonable assurance that (1) our transactions are properly authorized, recorded and reported; and (2) our assets are safeguarded against
unauthorized or improper use, to permit the preparation of our consolidated financial statements in conformity with GAAP.
Our
management, including our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls
and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Exchange Act) as of the end of the period covered by this report.
There are inherent limitations to the effectiveness of any system of disclosure controls and procedures. In designing and evaluating
the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated,
can provide only reasonable assurance of achieving the desired control objectives.
Based on the evaluation as of December 31, 2021,
for the reasons set forth below, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures
were effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the
Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and
that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer,
as appropriate, to allow timely decisions regarding required disclosure.
Management’s
Annual Report on Internal Control Over Financial Reporting.
Our
management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f)
or 15d-15(f) under the Exchange Act). Our internal control system was designed to, in general, provide reasonable assurance to our management
and the Board of Directors regarding the preparation and fair presentation of published financial statements, but because of its inherent
limitations, internal control over financial reporting may not prevent or detect misstatements.
Our chief executive officer and chief financial
officer evaluated the effectiveness of our internal control over financial reporting as of December 31, 2021, and based on that evaluation,
management concluded that our internal control over financial reporting was effective. Therefore, our management, including our chief
executive officer and chief financial officer, have concluded that our disclosure controls and procedures were effective to provide reasonable
assurance that the information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act
of 1934, as amended, is accumulated and communicated to the Company’s management to allow timely decisions regarding required disclosures.
The framework used by management in making that
assessment was the criteria set forth in the document entitled “Internal Control – Integrated Framework” issued by the
Committee of Sponsoring Organizations of the Treadway Commission in 2013.
Remediation of Previously Disclosed Material Weakness
As previously disclosed in our Annual Report on Form 10-K for the fiscal
year ended December 31, 2020, the assessment of our internal control over financial reporting determined that a material weakness in our
internal controls existed as of December 31, 2020, due to the lack of controls related to change management within the technology that
supported the Company’s financial reporting function. Measures were taken to remediate the material weakness, and we made significant
improvements to our key process related to change management around technology support. We concluded this reported material weakness was
remediated as of December 31, 2021.
Changes
in Internal Control over Financial Reporting
We
have implemented changes in our internal control over financial reporting (as defined in Rules 13a-15(f) or 15d-15(f) under the Exchange
Act) during the year ended December 31, 2021, related to general information technology controls in the area of change management in
order to remediate the material weakness identified in the year ended December 31, 2020.
There were no other changes in our internal control
over financial reporting during the quarter ended December 31, 2021 (as defined in Rules 13a-15(f) or 15d-15(f) under the Exchange Act)
that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
37
ITEM
9B. OTHER INFORMATION
Officer Employment Agreements
On March 23, 2022, the Company entered into
an Amended and Restated Employment Agreement with Jason Katz, the Company’s Chief Executive Officer (the “Katz Employment
Agreement”), which amends and restates Mr. Katz’s existing employment agreement with the Company dated as of October 7, 2016.
In addition, on March 23, 2022, the Company entered into an Amended and Restated Employment Agreement with Kara Jenny, the Company’s
Chief Financial Officer (the “Jenny Employment Agreement”), which amends and restates Ms. Jenny’s existing employment
with the Company dated as of December 9, 2019. Except as provided herein, all other terms and conditions of the prior employment agreements
between the Company and each of Ms. Jenny and Mr. Katz will remain in full force and effect.
Pursuant to the Katz Employment Agreement,
and as previously disclosed in the Company’s Definitive Proxy Statement filed with the SEC on April 9, 2021, effective February
1, 2021, Mr. Katz shall receive an annualized base salary of two hundred twenty-five thousand dollars ($225,000). The foregoing description
of the Katz Employment Agreement is qualified in its entirety by reference to the full text of the Katz Employment Agreement, which is
filed as Exhibit 10.15 to this Annual Report on Form 10-K and is incorporated by reference herein.
Pursuant to the Jenny Employment Agreement,
for fiscal year 2022, Ms. Jenny is entitled to receive an annualized base salary of two hundred sixty-five thousand dollars ($265,000),
effective retroactively as of January 28, 2022. For fiscal year 2023, provided that Ms. Jenny is still employed and in good standing with
the Company, she will be entitled to receive an annualized base salary of two hundred eighty-five thousand dollars ($285,000).
In addition, the Jenny Employment Agreement provides
that in the event of a Change in Control, if Ms. Jenny is terminated by the Company other than for Cause, or if Ms. Jenny terminates her
employment with the Company for Good Reason, then the Company shall pay Ms. Jenny severance equal to twelve (12) months of Ms. Jenny’s
then-current annualized base salary (each such capitalized term as defined in the Jenny Employment Agreement). The foregoing description
of the Jenny Employment Agreement is qualified in its entirety by reference to the full text of the Jenny Employment Agreement, which
is filed as Exhibit 10.21 to this Annual Report on Form 10-K and is incorporated by reference herein.
Stock Repurchase Plan
On March 21, 2022, the Board of Directors of the
Company approved a stock repurchase plan for up to $1,750,000 of the Company’s outstanding common stock (the “Stock Repurchase
Plan”). The Stock Repurchase Plan is effective as of March 29, 2022 and expires on the one-year anniversary of such date. Shares
may be repurchased from time-to-time in open market transactions at prevailing market prices, in privately negotiated transactions or
by other means in accordance with federal securities laws, including Rule 10b5-1 programs, and the Stock Repurchase Plan may be suspended
or discontinued at any time. The actual timing, number and value of shares repurchased will be determined by a committee of the Board
of Directors at its discretion and will depend on a number of factors, including the market price of the Company’s common stock,
general market and economic conditions, alternative investment opportunities and other corporate considerations.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT
INSPECTIONS.
Not applicable.
38
PART
III
ITEM
10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The
information required in response to this Item 10 is incorporated herein by reference to our Definitive Proxy Statement on Schedule 14A
to be filed with the SEC no later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K.
ITEM
11. EXECUTIVE COMPENSATION
The
information required in response to this Item 11 is incorporated herein by reference to our Definitive Proxy Statement on Schedule 14A
to be filed with the SEC no later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K.
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The
information required in response to this Item 12 is incorporated herein by reference to our Definitive Proxy Statement on Schedule 14A
to be filed with the SEC no later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K.
ITEM
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The
information required in response to this Item 13 is incorporated herein by reference to our Definitive Proxy Statement on Schedule 14A
to be filed with the SEC no later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K.
ITEM
14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The
information required in response to this Item 14 is incorporated herein by reference to our Definitive Proxy Statement on Schedule 14A
to be filed with the SEC no later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K.
39
PART
IV
ITEM
15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The
following are filed as part of this Annual Report:
1. Financial
Statements
The
financial statements filed as part of this Annual Report are included in “Item 8. Financial Statements and Supplementary Data.”
2. Financial
Statement Schedules
All
schedules have been omitted since the required information is not present, or not present in amounts sufficient to require submission
of the schedule, or because the information required is included in the Consolidated Financial Statements or the Notes thereto.
3. Exhibits
The
following exhibits are required by Item 601 of Regulation S-K.
(a) Documents
filed as part of this Annual Report.
1.
Report of Independent
Registered Public Accounting Firm
F-1
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
2.
Financial Statement Schedules
40
3.
Exhibits
required to be filed by Item 601 of Regulation S-K
The
following exhibits are included herein or incorporated herein by reference:
2.1#
Agreement
and Plan of Merger, dated September 13, 2016, by and among Paltalk, Inc., SAVM Acquisition Corporation, A.V.M. Software, Inc. and
Jason Katz (incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K of the Company filed on September 14, 2016
by the Company with the SEC).
2.2#
Asset
Purchase Agreement, by and between Paltalk, Inc. and The Dating Company, LLC, dated as of January 31, 2019 (incorporated by reference
to Exhibit 2.1 to the Current Report on Form 8-K of the Company filed on February 4, 2018 by the Company with the SEC).
2.3#
Amended
and Restated Asset Purchase Agreement, dated as of May 29, 2020, by and between Paltalk, Inc. and SecureCo, LLC (incorporated by
reference to Exhibit 2.2 to the Quarterly Report on Form 10-Q of the Company filed on August 6, 2020 by the Company with the SEC).
3.1
Certificate
of Incorporation of Paltalk, Inc. (as amended through May 15, 2020) (incorporated by reference to Exhibit 3.1 to the Quarterly Report
on Form 10-Q of the Company filed November 9, 2021 by the Company with the SEC).
3.2
Amended
and Restated By-Laws of Paltalk, Inc. (as amended through May 15, 2020) (incorporated by reference to Exhibit 3.2 to the Quarterly
Report on Form 10-Q of the Company filed November 9, 2021 by the Company with the SEC).
4.1*
Specimen
Stock Certificate of Paltalk, Inc.
4.2*
Description of Securities.
10.1
Statement
of Rights and Responsibilities, by and between Paltalk, Inc. and Facebook Inc. (incorporated by reference to Exhibit 10.1 to the
Annual Report on Form 10-K (File No. 000-52176) filed March 31, 2011 by the Company with the SEC).
10.2
Registered
Apple Developer Agreement, by and between Paltalk, Inc. and Apple Inc. (incorporated by reference to Exhibit 10.2 to the Annual Report
on Form 10-K (File No. 000-52176) filed March 31, 2011 by the Company with the SEC).
10.3
iOS
Developer Program License Agreement, by and between Paltalk, Inc. and Apple Inc. (incorporated by reference to Exhibit 10.3 to the
Annual Report on Form 10-K (File No. 000-52176) filed March 31, 2011 by the Company with the SEC).
10.4†
Amended
and Restated Paltalk, Inc. 2011 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form
10-Q (File No. 000-52176) of the Company filed on November 14, 2011 by the Company with the SEC).
10.5†
Form
of Restricted Stock Unit Award Agreement (incorporated by reference to Exhibit 99.2 to the Registration Statement on Form S-8 (File
No. 333-174456) of the Company filed on May 24, 2011 by the Company with the SEC).
10.6†
Form
of Restricted Stock Award Agreement (incorporated by reference to Exhibit 99.3 to the Registration Statement on Form S-8 (File No.
333-174456) of the Company filed on May 24, 2011 by the Company with the SEC).
10.7†
Form
of Nonqualified Stock Option Agreement (incorporated by reference to Exhibit 99.4 to the Registration Statement on Form S-8 (File
No. 333-174456) of the Company filed on May 24, 2011 by the Company with the SEC).
10.8†
Form
of Incentive Stock Option Agreement (incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q (File No. 000-52176)
of the Company filed on November 14, 2011 by the Company with the SEC).
10.9†
Paltalk,
Inc. 2016 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K of the Company filed
on May 16, 2016 by the Company with the SEC).
10.10†
First
Amendment to Paltalk, Inc. 2016 Long Term Incentive Plan, dated as of April 10, 2017 (incorporated by reference to Exhibit 10.1 to
the Current Report on Form 8-K of the Company filed on May 30, 2017 by the Company with the SEC).
10.11†
Form
of Nonqualified Stock Option Agreement (incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q of the Company
filed on August 11, 2016 by the Company with the SEC).
41
10.12†
Form
of Incentive Stock Option Agreement (incorporated by reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q of the Company
filed on August 11, 2016 by the Company with the SEC).
10.13†*
Form of Director and Officer Nonqualified Stock Option Agreement.
10.14†
Form
of Restricted Stock Award Agreement (incorporated by reference to Exhibit 10.4 to the Quarterly Report on Form 10-Q of the Company
filed on August 11, 2016 by the Company with the SEC).
10.15†*
Amended and Restated Executive Employment Agreement, dated March 23, 2022, by and between Paltalk, Inc. and Jason Katz.
10.16
Registration
Rights Agreement, dated October 7, 2016, by and between Paltalk, Inc. and Clifford Lerner (incorporated by reference to Exhibit 10.2
to the Current Report on Form 8-K of the Company filed on October 11, 2016 by the Company with the SEC).
10.17†
Form
of Indemnification Agreement (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K of the Company filed on
February 15, 2017 by the Company with the SEC).
10.18
First
Amendment to Registration Rights Agreement, dated June 15, 2018, by and between the Company and Clifford Lerner (incorporated by
reference to Exhibit 10.2 to the Current Report on Form 8-K of the Company filed on June 19, 2018 by the Company with the SEC).
10.19†*
Amended and Restated Employment Agreement, dated March 23, 2022, by and between Paltalk, Inc. and Kara Jenny.
21.1*
Subsidiaries
of the Company.
23.1*
Consent of Marcum LLP.
31.1*
Certification
of the Chief Executive Officer of the Company, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*
Certification
of the Chief Financial Officer of the Company, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1**
Certification
of the Chief Executive Officer and Chief Financial Officer of the Company, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS
Inline XBRL Instance Document
101.SCH
Inline XBRL Taxonomy Extension Schema Document.
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
#
Schedules
and exhibits have been omitted pursuant to Item 601(b)(2) of Regulation S-K. Paltalk, Inc. hereby undertakes to furnish supplementally
copies of any of the omitted schedules and exhibits upon request by the Securities and Exchange Commission.
†
Management
contract or compensatory plan arrangement.
*
Filed
herewith.
**
The
certification attached as Exhibit 32.1 is not deemed filed with the Securities and Exchange Commission and is not to be incorporated
by reference into any filing of Paltalk, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934,
as amended, whether made before or after the date of the Annual Report on Form 10-K, irrespective of any general incorporation language
contained in such filing.
ITEM 16. FORM 10-K SUMMARY
Not
applicable.
42
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Dated: March 23, 2022
PALTALK, INC.
By:
/s/ Jason Katz
Jason Katz
Chief Executive Officer
(Principal Executive Officer)
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/
Jason Katz
Chief
Executive Officer and Chairman of the Board
March
23, 2022
Jason
Katz
(Principal
Executive Officer)
/s/
Kara Jenny
Chief
Financial Officer and Director
March
23, 2022
Kara
Jenny
(Principal
Financial and Accounting Officer)
/s/
Yoram “Rami” Abada
Director
March
23, 2022
Yoram
“Rami” Abada
/s/
Lance Laifer
Director
March
23, 2022
Lance
Laifer
/s/
John Silberstein
Director
March
23, 2022
John
Silberstein
43