What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-03-15 compared with 2023-03-23 · 199 added, 375 removed, 211 unchanged (73% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Management’s Discussion and Analysis

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Risk Factors” in this Annual Report on

We are a leading communications software innovator

that powers multimedia social applications.

Our product portfolio includes Paltalk, Camfrog and Tinychat, which together host one of

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

Our other products are ManyCam and Vumber.

ManyCam is a live streaming

software and virtual camera that allows users to deliver professional live videos on streaming platforms, video conferencing apps and

distance learning tools.

Vumber 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.

We have an over 20-year

history of technology innovation and hold 10 patents.

We are a communications software innovator that

powers multimedia social applications.

We operate a network of consumer applications that we believe create a unique social media enterprise

where users can meet, see, chat, broadcast, play online card games and board games and message in real time in a secure environment with

others in our network.

Our consumer applications generate revenue principally from subscription fees and advertising arrangements.

Our product portfolio includes Paltalk, Camfrog

and Tinychat, which together host a large collection of video-based communities.

Our other products include ManyCam and Vumber.

is a live streaming software and virtual camera that allows users to deliver professional live videos on streaming platforms, video conferencing

apps and distance learning tools.

Vumber 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.

over 20-year history of technology innovation and hold 8 patents.

We believe that the scale of our user base presents

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advertising campaigns that we run through internet and mobile advertising networks, all while balancing the capital needs of the business.

Our strategy also includes the acquisition of, or investment in, technologies, solutions or businesses that complement our business.

Our strategy also includes the acquisition of, or investment in, technologies, solutions or businesses that complement our business and

cross-selling them to additional synergistic businesses.

Our strategy is to approach these opportunities

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needed to invest in the opportunity.

Background of Presentation and Recent Developments

Stock Repurchase Plan

On March 23, 2022, we announced that 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 was determined by a committee

of the Board of Directors at its discretion and depends 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.

During the year

ended December 31, 2022, the Company purchased a total of 604,808 at an average share price of $1.65 per share.

ManyCam Asset Acquisition

On June 9, 2022 (the “Effective Date”),

we entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) by and among the Company, ManyCam ULC,

an unlimited liability company incorporated under the laws of the Province of Alberta and a wholly owned subsidiary of the Company (the

“Purchaser”), Visicom Media Inc., a Canadian corporation (“Visicom”), and 2434936 Alberta ULC, an unlimited liability

company incorporated under the laws of the Province of Alberta (“Target NewCo”), pursuant to which the Purchaser purchased,

effective as of the Effective Date, all of the issued and outstanding shares of Target NewCo (the “ManyCam Acquisition”).

Prior to the ManyCam Acquisition, Target NewCo held all assets related to, or used by Visicom in connection with, the business of developing

and distributing virtual webcam driver software, including virtual backgrounds and/or “masks” or other camera effects (other

than the Excluded Contracts (as defined in the Securities Purchase Agreement)), whether tangible or intangible, including, but not limited

to, Target NewCo’s ManyCam software (“ManyCam”) and related source code, customer lists, customer relationships and

all associated customer information, contracts with contractors and suppliers, brand names, trade secrets, trademarks, trade names, designs,

copyrights, websites, all URLs, goodwill and intellectual property associated with each of the foregoing (collectively, the “Conveyed

The Purchaser acquired the Conveyed Assets for

a cash purchase price of $2.7 million (the “Cash Consideration”).

In addition to the Cash Consideration, Visicom is entitled

to receive an additional payment of up to $600,000 (the “Earn-Out Payment”) based on the sales of the ManyCam software less

chargebacks and refunds (“Gross Sales”) in the six-month period following the closing (the “Earn-Out Period”)

(i) if the Gross Sales during the Earn-Out Period are greater than $800,000, the Earn-Out Payment shall be $600,000, (ii)

if the Gross Sales during the Earn-Out Period are greater than $700,000 but less than $800,000, the Earn-Out Payment shall be $300,000,

(iii) if the Gross Sales during the Earn-Out Period are greater than $600,000 but less than $700,000, the Earn-Out Payment shall be $150,000

and (iv) if the Gross Sales during the Earn-Out Period do not exceed $600,000, then Visicom will not be paid any portion of the Earn-Out

On June 30, 2022, we entered into a License Agreement

with Visicom (the “License Agreement”), pursuant to which we agreed to distribute, at the discretion and direction of Visicom,

a specified number of ManyCam software updates to certain license holders to whom Visicom has previously granted a “lifetime”

license to ManyCam software.

As consideration for distributing the software updates, Visicom paid us an initial upfront nonrefundable

payment of $65,000.

The License Agreement provides that Visicom may purchase additional licenses at prices specified therein.

providing a one-time, limited license to Visicom for the distribution of ManyCam software updates pursuant to the terms of the License

Agreement, we do not have any obligation to provide support or service to the licensee end users.

Gross Sales during the Earn-Out Period

exceeded $600,000 but were less than $700,000.

Pursuant to the terms of that certain Letter Agreement, by and between Visicom, the

Purchaser and the Company, dated February 24, 2023, the Company made an Earn-Out Payment to Visicom in the amount of $85,000 (the

“Adjusted Earn-Out Payment”).

We recorded a liability in the amount of the Adjusted Earn-Out Payment, with a

corresponding adjustment to the cost basis of the Conveyed Assets.

The Company expects that the Adjusted Earn-Out Payment will be

paid in the first quarter of 2023.

As part of the accounting for the Conveyed Assets,

we provisionally recorded a deferred tax liability of $0.9 million with an offset to intangible assets related to the excess financial

reporting basis over the tax basis of the Conveyed Assets.

Macro-Economic Factors and COVID-19 Update

Recent Developments

Director Appointment

On October 9, 2023, our Board of Directors increased

the size of the Board of Directors from five (5) directors to six (6) directors and filled the newly created vacancy by appointing Geoffrey

Cook as a director of the Company, effective as of October 10, 2023.

Cook was also appointed to serve as a member of the Nominating

and Corporate Governance Committee of the Board of Directors and the Strategic Transactions Committee of the Board of Directors.

Cook is qualified to serve on our Board of Directors due to, among other things, his experience in the social media and consumer

internet industries as well as his insights regarding corporate strategy and brand growth.

Impact of Macro-Economic Factors

Our results of operations have been and may continue

to be negatively impacted by the uncertainty regarding COVID-19 and macro-economic factors, including the timing of economic recessions

and/or recovery and the overall inflationary environment.

Prolonged periods of inflation may affect our ability to target new customers

as well as keep existing customers engaged and may ultimately have a correlating effect on our users’ discretionary spending.

user growth may continue to slow or decline as the impact of the COVID-19 pandemic continues to taper, particularly in light of a potential

economic downturn.

Furthermore, the recent strength of the US dollar compared to foreign currencies could have a negative effect on our

non-US customer base, as our subscription prices are based in US dollars.

Operational Highlights and Objectives

to be negatively impacted by macro-economic factors, including the timing of economic recessions and/or recovery and the overall inflationary

Prolonged periods of inflation have affected, and may continue to affect, our ability to target new customers as well as

keep existing customers engaged and may ultimately have a correlating effect on our users’ discretionary spending.

Additionally,

the closures of certain banks in the first and second quarters of 2023 and their placement into receivership with the Federal Deposit

Insurance Corporation created bank-specific and broader financial institution liquidity challenges and concerns.

Future adverse developments

with respect to specific financial institutions or the broader financial services industry may create additional market and economic

uncertainty, which could affect our industry.

Under the provisions

of the extension of the Coronavirus Aid, Relief, and Economic Security Act, we were eligible for a refundable employee retention tax

credit (the “ERTC”) subject to certain criteria.

During the year ended December 31, 2023, we applied for the ERTC and recorded

a receivable in the amount of $343,045, net of related costs, which was recognized in our consolidated statement of operations as other

As of December 31, 2023, we received an aggregate of $294,833, which was recorded as a reduction of the receivable on our consolidated

balance sheet.

Operational Highlights and Business Objectives

During the year ended December 31, 2023 we executed

key components of our objectives:

the core assets of ManyCam, a live streaming software and virtual camera that allows users to deliver professional live videos on streaming

platforms, video conferencing apps and distance learning tools and worked on cross-selling the ManyCam software to commercial businesses

as well as retail consumers;

repurchased 604,808

shares of the Company’s common stock pursuant to the Stock Repurchase Plan at an average price per share of $1.65, or an aggregate

amount of approximately $1.0 million;

engaged Roth Capital Partners,

LLC as our financial advisor and investment banker to explore strategic initiatives focused on buy-side acquisitions.

total revenue remained relatively unchanged at approximately

$11 million for the years ended December 31, 2023 and 2022, primarily as a result of a decrease in revenue from Paltalk and Camfrog,

offset by increased revenue from ManyCam and Vumber;

net loss decreased by 68.7% to $1.1 million for the year

ended December 31, 2023, compared to net loss of $3.4 million for the year ended December 31, 2022, as a result of reduced expenses

and increased operating efficiencies;

compared to the prior year period, cash flows used in operations

decreased by $1.9 million to $1.1 million for the year ended December 31, 2023, mainly as result of a decrease in product development

and marketing expense;

we were cash flow positive for the third quarter ended

September 30, 2023;

engaged Cleverbridge to facilitate our global payment processing

capabilities in international geographic markets.

For the near term, our business objectives include:

continue to explore strategic

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

to our business;

optimizing our acquisition

of the ManyCam software to not only maximize subscription revenue but to integrate and cross-sell with our existing customer base

and explore business-to-business sales opportunities;

adjusting our spending to better align with overall

macro-economic conditions and investing in a measured way that ensures responsible cash management;

continuing to implement

several enhancements to our live video chat applications as well as the integration of card and board games and other features focused

on user retention and monetization, which collectively are intended to increase user engagement and revenue opportunities;

continuing to develop our

consumer application platform strategy by seeking potential partnerships with large third-party communities to whom we could promote

a co-branded version of our video chat products and potentially share in the incremental revenues generated by these partner communities;

continuing to defend our

intellectual property.

leveraging our integration of the ManyCam product into

Paltalk product through upselling initiatives;

further optimizing marketing spend to effectively realize

a positive return on our investment;

developing a user-friendly version of ManyCam that will

be optimized for both consumer and enterprise applications;

continuing to implement several enhancements to our live

video chat applications as well as the integration of card and board games and other features focused on retention and monetization,

which collectively are intended to increase user engagement and revenue opportunities;

continuing to explore strategic opportunities, including,

but not limited to, potential mergers or acquisitions of other assets or entities that are synergistic to our businesses;

continuing to develop our consumer application platform

strategy by seeking potential partnerships with large third-party communities to whom we could promote a co-branded version of our

video chat products and potentially share in the incremental revenues generated by these partner communities;

continuing to defend our intellectual property.

Sources of Revenue

Our main sources of revenue are subscription

advertising and other fees generated from users of our core video chat products, Paltalk and Camfrog, as well as revenue downloads of

our ManyCam software products.

We expect that the majority of our revenue in future periods will continue to be generated from our core

video chat products.

We also generate technology service revenue under licensing and service agreements that we negotiate with third

parties which includes development, integration, engineering, licensing or other services that we provide.

revenue, which includes virtual gift revenue, and advertising revenue generated from users of our core video chat products, Paltalk and

We also generate revenue from subscriptions for our ManyCam software product.

We expect that the majority of our revenue in

future periods will continue to be generated from our core video chat products.

Subscription Revenue

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Our tiers of subscriptions provide users with unlimited video windows and levels of status within the community.

Multiple subscription tiers are offered in different durations depending on the product from one-, six- and twelve-month terms, which

continue to vary as we continue to test and optimize length and pricing.

Longer-term plans (those with durations longer than one month)

are generally available at discounted monthly rates.

Levels of membership benefits are offered in tiers, with the least membership benefits

in the lowest paid tier and the most membership benefits in the highest paid tier.

Our membership tiers are “Plus,” “Extreme,”

“VIP” and “Prime” for Paltalk and “Pro,” “Extreme” and “Gold” for Camfrog.

Multiple subscription tiers are offered in different durations depending on the product from one-, three-, six-, twelve-, and twenty-four-month

terms, which continue to vary as we continue to test and optimize length and pricing.

Longer-term plans (those with durations longer

than one month) are generally available at discounted monthly rates.

Levels of membership benefits are offered in tiers, with the least

membership benefits in the lowest paid tier and the most membership benefits in the highest paid tier.

Our membership tiers are “Plus,”

“Extreme,” “VIP” and “Prime” for Paltalk and “Pro,” “Extreme” and “Gold”

We also hold occasional promotions that offer discounted subscriptions and virtual gifts.

Subscriptions for ManyCam are generally offered

in annual and two-year terms, with exceptions made for enterprise sales.

Subscriptions for ManyCam are

generally offered in annual and two-year terms, with exceptions made for enterprise sales.

We recognize revenue from monthly premium subscription

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

Technology Service Revenue

Technology service revenue is generated under

service and partnership agreements that we negotiate with third parties, which includes development, integration, engineering, licensing

or other services that we provide.

During the year ended December 31, 2021, we recorded

technology service revenue in connection with our 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 our Camfrog and Paltalk applications (as amended, the “YouNow Agreement”).

In August 2021, we 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 2021.

The YouNow Agreement was terminated effective on November 23, 2021.

We expect that the majority of our future technology service revenue,

if any, will result from opportunistic collaborations with third parties, however, any such collaborations are not a primary focus for

Costs and Expenses

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

employee-related and consultants-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.

employee-related and consultant-related costs that are not capitalized for personnel engaged in the design, testing and enhancement of

service offerings as well as amortization of capitalized website development costs.

General and administrative expense

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finance, legal, tax and human resources and facilities costs and fees for other professional services and cost of insurance.

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

Impairment loss on digital tokens

Impairment loss on digital tokens results from

the daily assessment of the Props tokens’ quoted market prices, as reflected on CoinmarketCap, and adjusting the recorded carrying

amount to the amount equal to the lowest quoted market price during the period in which the Props tokens are held.

During the years ended

December 31, 2022 and 2021, we recorded a non-cash impairment charge in the amount of $7,262 and $765,232, respectively, which is reported

in our accompanying consolidated statements of operations as a result of recent decline in the quoted market prices below the market

price of their acquisition.

administrative expense also includes amortization of intangible assets.

Our management relies on certain non-GAAP and/or

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growth trends, establish budgets, measure the effectiveness of our advertising and marketing efforts and assess operational efficiencies.

Historically, we used Subscription Bookings to represent the aggregate dollar value of subscription fees and virtual gifts purchases

received during the period.

However, going forward, we have decided to not report Subscription Bookings as we believe that this key performance

indicator is no longer an appropriate metric to evaluate our business.

We also discuss net cash provided by operating activities under

the ‟Results of Operations” and “Liquidity and Capital Resources” sections below.

Adjusted EBITDA is discussed

Net cash (used in) provided by operating activities

We also discuss net cash provided by operating activities under the “Liquidity and Capital Resources” section below.

EBITDA is discussed below.

Net cash used in operating activities

$ (1,079,671 )

Net (loss) income

$ (2,956,724 )

$ (1,067,335 )

$ (3,412,250 )

Adjusted EBITDA

$ (1,012,916 )

$ (2,646,860 )

Adjusted EBITDA as percentage of total revenue

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Adjusted EBITDA is a non-GAAP financial measure.

Adjusted EBITDA is defined as net income adjusted to exclude net loss from interest income, net, provision for income taxes, gain on

office lease termination, impairment loss on goodwill, gain from sale of Secured Communication Assets, gain on the extinguishment of

term debt, provision for income taxes, depreciation and amortization expense, loss on disposal of property and equipment, other expense,

impairment loss on digital tokens, gain on extinguishment of digital tokens payable, realized loss (gain) from the sale of digital tokens

and stock-based compensation expense.

Adjusted EBITDA is defined as net (loss) income adjusted to exclude stock-based compensation expense, depreciation and amortization expenses,

impairment loss on digital token, interest income, net, other (income) expense, net, and income tax (benefit) expense.

We present Adjusted EBITDA because it is a key

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other expense, net;

gain on sale of the Dating Services Business;

income tax expense from continuing operations;

gain on office lease termination;

impairment loss on goodwill;

gain from sale of Secured Communication Assets;

loss on disposal of property

and equipment;

our working capital requirements;

the impairment loss on digital tokens;

realized gain (loss) from the sale of digital

the impairment

loss on digital tokens;

the potentially dilutive impact of stock-based compensation;

gain on the extinguishment of term debt;

gain on extinguishment

of digital tokens payable;

and the provision for income taxes.

Other companies, including companies in our industry, may calculate Adjusted

EBITDA differently, which reduces its usefulness as a comparative measure.

Other companies,

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

Because of these limitations, you should consider

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

Reconciliation of Net (Loss) Income to Adjusted EBITDA:

Net (loss) income

Reconciliation of Net Loss to Adjusted EBITDA:

$ (1,067,335 )

$ (3,412,250 )

Stock-based compensation expense

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Interest income, net

Gain on extinguishment of term debt

Realized loss (gain) from sale of digital tokens

Gain on termination of digital tokens payable

Income tax (benefit) expense

Other income, net

Income tax benefit

Adjusted EBITDA

$ (1,012,916 )

$ (2,646,860 )

Results of Operations

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Total costs and expenses

(Loss) income from operations

Loss from operations

Interest income, net

Gain on extinguishment of term debt

Realized gain (loss) from sale of digital tokens

(Loss) income from operations before income tax (benefit) expense

Income tax (benefit) expense

Net (loss) income

Year Ended December 31, 2022, Compared to

Year Ended December 31, 2021

Total revenue decreased to $10,989,545 for the

year ended December 31, 2022, from $13,273,849 for the year ended December 31, 2021.

The decrease was primarily driven by a decrease

in subscription revenue and virtual gift revenue from the Paltalk and Camfrog applications, as well as a decrease in technology service

revenue driven by the termination of the YouNow Agreement, effective November 23, 2021.

The decrease was partially offset by revenue recognized

from sales of the ManyCam product.

Other income, net

Loss from operations before income tax benefit

Income tax benefit

Year Ended December 31, 2023 Compared to Year

Ended December 31, 2022

Total revenue remained relatively unchanged at

$10,979,844 for the year ended December 31, 2023, compared to $10,989,545 for the year ended December 31, 2022.

The change was primarily

driven by a decrease in subscription revenue and virtual gift revenue from the Paltalk and Camfrog applications and was partially offset

by revenue recognized from sales of the ManyCam product and Vumber.

The following table sets forth our subscription

revenue, advertising revenue, technology service revenue and total revenue for the year ended December 31, 2022, and the year ended December

31, 2021, the increase or decrease between those periods, the percentage increase or decrease between those periods, and the percentage

of total revenue that each represented for those periods:

% of Revenue Years Ended

revenue, advertising revenue and total revenue for the year ended December 31, 2023, and the year ended December 31, 2022, the increase

or decrease between those periods, the percentage increase or decrease between those periods, and the percentage of total revenue that

each represented for those periods:

% of Revenue Years

Subscription revenue

$ (1,705,317 )

Advertising revenue

Technology service revenue

Total revenues

$ (2,284,304 )

Subscription Revenue

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31, 2023 decreased by $15,991, or 0.1%, as compared to the year ended December 31, 2022.

The decrease in subscription revenue was

primarily driven by a decrease in new subscribers as well as a decrease in virtual gift revenue across the Paltalk and Camfrog applications.

We attribute this decrease to the overall macro-economic environment that may limit a customer’s access to discretionary spending,

as well as, to a lesser degree, the lifting of various COVID-19 related restrictions in certain of our target markets that had previously

prohibited individuals from leaving their homes and, as a result, caused customers to devote less time to their social applications.

As ManyCam primarily sells annual subscriptions, its revenue is consistent with similar annual subscription models in their early stages,

as the cash received traditionally will outpace the subscription revenue recognized.

We anticipate that subscription revenue related

to ManyCam will increase in future quarters as the deferred revenue generated from ManyCam subscriptions is recognized.

The decrease in subscription revenue was primarily

driven by a decrease in new subscribers as well as a decrease in virtual gift revenue across the Paltalk and Camfrog applications.

attribute this decrease to the overall macro-economic environment that may limit a customer’s access to discretionary spending.

These decreases were partially offset by increased revenue from ManyCam as the revenue for the year ended December 31, 2023 represented

revenue for twelve months, whereas the revenue for the year ended December 31, 2022, represented only six months of subscription revenue.

Advertising Revenue

Our advertising revenue for the year ended December

31, 2022 decreased by $124,483, or 27.6%, as compared to the year ended December 31, 2021.

The decrease in advertising revenue was primarily

due to a decrease in the volume of advertising impressions related to changes in and the optimization of third-party advertising partners

due to a slower growing user base as well as overall decline in the advertising market.

Technology Service Revenue

Our technology service revenue for the year ended

December 31, 2022, decreased by $454,504, or 100.0%, as compared to the year ended December 31, 2021.

The decrease in technology service

revenue was driven by the termination of the YouNow Agreement, effective November 23, 2021.

31, 2023 increased by $6,290, or 1.9%, as compared to the year ended December 31, 2022.

The increase in advertising revenue was primarily

due to an increase in the volume of advertising impressions related to changes in and the optimization of third-party advertising partners

and partnering with a new facilitator in the market.

Costs and Expenses

Total costs and expenses for the year ended December

31, 2022 increased by $1,893,996 or 14.8%, as compared to the year ended December 31, 2021.

31, 2023 decreased by $1,598,268 or 10.9%, as compared to the year ended December 31, 2022.

The following table presents our costs and

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

% of Revenue Years Ended

% of Revenue Years

Cost of revenue

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Total costs and expenses

$ (1,598,268 )

Cost of revenue

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The increase for the year ended December 31,

2022, was primarily driven by an increase in costs related to the ManyCam product, which launched in June of 2022, of approximately $206,658.

These expenses were partially offset by decreases in non-cash stock compensation expense of $48,000 and credit card processing of approximately

2023, was primarily driven by an increase in costs related to hosting expenses of approximately $364,000, as well as costs related to

the ManyCam product, which launched in June of 2022, of approximately $61,000.

Sales and marketing expense

Our sales and marketing expense for the year

ended December 31, 2022 increased by $400,889, or 34.3%, as compared to the year ended December 31, 2021.

The increase in sales and marketing

expense for the year ended December 31, 2022 was primarily due to an increase of approximately $366,000 in marketing user acquisition

expenses, including agent fees, as we focused on increasing user engagement spend through the efforts of our third-party marketing agencies,

which we have subsequently scaled back on, and an increase of approximately $26,000 in other marketing and branding expenses driven by

an increased grow our focus on social media and influencers.

ended December 31, 2023 decreased by $692,618, or 44.1%, as compared to the year ended December 31, 2022.

The decrease in sales and marketing

expense for the year ended December 31, 2023 was primarily due to a decrease of approximately $459,000 in marketing user acquisition

expenses, including agent fees compared to the prior year.

During the year ended December 31, 2022, we focused on increasing user engagement

spend through the efforts of our third-party marketing agencies, which we have subsequently scaled back.

This resulted in a decrease

of approximately $203,000 in other marketing and branding expenses, as well as a decrease in headcount costs of approximately $46,000

for the year ended December 31, 2023 compared to 2022.

Product development expense

Our product development expense for the year

ended December 31, 2022 increased by $542,614, or 10.1%, as compared to the year ended December 31, 2021.

The increase was primarily

due to an increase of approximately $329,000 related to software expenses in support the newly launched ManyCam product.

dues and subscriptions expense increased by approximately $132,000, and Paltalk and Camfrog consulting expenses increased by approximately

$137,000 related to initiatives to enhance user retention and improve monetization in the Paltalk application.

These increases was partially

offset by a decrease of approximately $114,000 in capitalized amortization software related to Paltalk.

ended December 31, 2023 decreased by $1,073,826, or 18.1%, as compared to the year ended December 31, 2022.

The decrease was primarily

due to a decrease of approximately $825,000 related to software expenses.

We accomplished this reduction by streamlining our offshore

development efforts as well as reallocating in-house resources.

In addition, headcount costs were reduced by approximately $83,000, dues

and subscriptions decreased by approximately $74,000 and a decrease of approximately $69,000 in capitalized amortization software related

General and administrative expense

Our general and administrative expense for the

year ended December 31, 2022 increased by $1,605,082, or 59.3%, as compared to the year ended December 31, 2021.

The increase in general

and administrative expense for the year ended December 31, 2022 was mainly due to increased non-cash stock compensation expense of approximately

$402,000, an increase in amortization of approximately $417,000 related to the acquisition of the ManyCam assets, increased professional

fees of approximately $265,000 and increased insurance costs of approximately $122,000.

In addition, included in the year ended December

31, 2021, was approximately $335,000 of non-cash gain on extinguishment of digital tokens payable.

year ended December 31, 2023 decreased by $239,235, or 5.5%, as compared to the year ended December 31, 2022.

The decrease in general

and administrative expense for the year ended December 31, 2023, was mainly due to a decrease of professional fees of $299,000, as well

as a decrease in headcount costs, including non-cash stock compensation expense, of approximately $206,000.

This was offset by an increase

in non-cash amortization of approximately $221,000 related to the acquisition of the ManyCam assets.

Impairment loss on digital tokens

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below the market price of their acquisition.

This loss represents a $757,970 decrease in the size of the loss compared to the year ended

December 31, 2021.

There was no such impairment loss for year ended December 31, 2023.

Non-Operating Income

The following table presents the components of

non-operating income for the year ended December 31, 2022 and the year ended December 31, 2021, the increase or decrease between those

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

non-operating income for the year ended December 31, 2023 and the year ended December 31, 2022, the increase between those periods and

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

% of Revenue Years Ended

Interest income, net

Gain on extinguishment of term debt

Realized gain from sale of digital tokens

Other income, net

Total non-operating income

Non-operating income for the year ended December

31, 2022 was $74,895, a decrease of $739,672, or 90.8%, as compared to non-operating income of $814,567 for the year ended December

The decrease resulted from the gain on extinguishment of term debt of the $506,500 of proceeds from the note received in order

to help ensure adequate liquidity in light of the uncertainties posed by the COVID-19 pandemic as well as a gain from sale of digital

tokens of $307,934, both of which happened during the year ended December 31, 2021.

31, 2023 was $982,656, an increase of $907,761, or 1,212.0%, as compared to non-operating income of $74,895 for the year ended December

The increase in interest income was the result of interest earned in a high-yield bank account.

The increase in other income

was the result of recording the ERTC.

Liquidity and Capital Resources

Consolidated Statements of Cash Flows Data:

Net cash (used in) provided by operating activities

Net cash used in operating activities

$ (1,079,671 )

Net cash (used in) provided by investing activities

Net cash (used in) provided by financing activities

$ (2,956,724 )

Net cash used in investing activities

Net cash used in financing activities

Net change in cash and cash equivalents

$ (1,171,884 )

$ (6,896,927 )

Currently, our primary source of liquidity is

cash on hand and cash flows from continuing operations, and we believe that our cash and cash equivalents balance and our expected cash

flow from operations will be sufficient to meet all of our financial obligations for the twelve months from the date these financial

statements are issued.

As of December 31, 2022, we had over $14.7 million of cash and cash equivalents.

flow from operations will be sufficient to meet all of our financial obligations for one year from the date these financial statements

As of December 31, 2023, we had approximately $13.6 million of cash and cash equivalents.

Our use of working capital is related to product

development resources and an investment in marketing activities in order to maintain and create new services and features in applications

for our clients and users.

for our users.

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

In addition, during the year ended December 31, 2022, we spent $997,924 in connection with our Stock Repurchase Plan as we purchased

a total of 604,808 shares at an average share price of $1.65 per share.

In the future, we may continue to seek to grow our business by

expending our capital resources to fund strategic acquisitions, investments and partnership opportunities.

On August 5, 2021, we announced the closing of

the August 2021 Offering in which we offered and sold 1,159,400 shares of our common stock.

We also granted the underwriters an option

to purchase up to an additional 173,910 shares of common stock at the public offering price less discounts and commissions to cover over-allotments,

which was exercised in full on August 5, 2021.

The net proceeds to us from the August 2021 Offering were approximately $3.2 million,

after deducting underwriting discounts, commissions and other estimated offering expenses.

In addition, on October 19, 2021, we announced

the pricing and closing of the October 2021 Offering in which we offered and sold 1,552,500 shares of our common stock.

We also granted

the underwriters an option to purchase up to an additional 202,500 shares of common stock at the public offering price less discounts

and commissions to cover over-allotments, which was exercised in full on October 14, 2021.

The net proceeds to us from the October 2021

Offering were approximately $10.7 million, after deducting underwriting discounts, commissions and other estimated offering expenses.

addition, during the year ended December 31, 2023, we spent $7,213 in connection with our stock repurchase plan (the “Stock Repurchase

Plan”) as we purchased a total of 5,192 shares at an average share price of $1.39 per share.

The Stock Repurchase Plan expired

on March 29, 2023 pursuant to its terms and has not been renewed.

In the future, we may continue to seek to grow our business by expending

our capital resources to fund strategic acquisitions, investments and partnership opportunities.

Operating Activities

Net cash used in operating activities was $1,079,671

for the year ended December 31, 2022, as compared to net cash provided by operating activities of $1,265,464 for the year ended December

A loss from operations, due to the decrease in subscription revenue as well as changes in accounts payable, accrued expenses

and other current liabilities of $453,928 which contributed to a lower cash flow for the year ended December 31, 2022, compared to the

year ended December 31, 2021.

for the year ended December 31, 2023, as compared to net cash used in operating activities of $2,956,724 for the year ended December

The decrease in cash used in the period was primarily the result of the improvement in the net loss, which was attributed to

a reduction in operating expenses as a result of streamlined operations.

Investing Activities

Net cash used in investing activities was $85,000

for the year ended December 31, 2022, as compared to net cash provided by investing activities of $858,848 for the year ended December

for the year ended December 31, 2023, as compared to net cash used in investing activities of $2,942,279 for the year ended December

The decrease in cash flows from investing activities resulted primarily from the ManyCam acquisition.

1 unchanged sentence

Net cash used in financing activities was $7,213

for the year ended December 31, 2022, as compared to net cash provided by financing activities of $13,927,128 for the year ended December

During fiscal 2022, the use of cash of $997,924 was attributed to the Company’s repurchase of the Company’s stock

pursuant to its share buy back plan.

The decrease in net cash provided by financing activities compared to the prior year is a result

of the August 2021 and October 2021 Offerings, in which the Company sold an aggregate of 2,885,810 shares of common stock at a price

to the public of $3.00 and $7.50 per share, respectively.

Net proceeds received by the Company from the August 2021 and October 2021

Offerings were approximately $13.9 million, after underwriting discounts and commissions and other estimated offering expenses.

for the year ended December 31, 2023, as compared to net cash used in financing activities of $997,924 for the year ended December 31,

During fiscal 2022, the use of cash of $997,924 was attributed to the Company’s repurchase of the Company’s stock pursuant

to its Stock Repurchase Plan.

The Stock Repurchase Plan expired on March 29, 2023 pursuant to its terms and has not been renewed.

Contractual Obligations and Commitments

As discussed above, on May 3, 2020, to help ensure

adequate liquidity in light of the uncertainties posed by the COVID-19 pandemic, we entered into the Note in favor of the Lender in the

aggregate principal amount of $506,500.

The Note had a two-year term and borne interest at a stated rate of 1.0% per annum.

provide any collateral or guarantees for the Note, nor did we 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.

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

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

On June 7, 2016, we entered into a lease agreement

with Jericho Executive Center LLC for office space at 30 Jericho Executive Plaza in Jericho, New York, which commenced on September 1,

2016 and runs through November 30, 2021.

2016 and ran through November 30, 2021.

On April 9, 2021, we 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

Our monthly office rent payments under the lease are currently approximately $7,081 per month.

On April 9, 2021, we 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.

On March 23, 2022, we entered into Amended and

Restated Employment Agreements with our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”),

which amends and restates their existing employment agreements with the Company dated October 7, 2016 and December 9, 2019, respectively.

The agreements are each for terms of one year with auto renewal provisions.

Except for adjustments to base salaries, all other terms

and conditions of the prior employment agreements between the Company and the CEO and CFO will remain in full force and effect.

agreement is retroactive to February 2021.

The CFO agreement is retroactive to January 2022.

Aggregate commitments of base salaries under

the agreements for 2022 total $490,000.

Should the agreements be renewed for 2023 and beyond, the aggregate base salary commitments would

total $510,000 per year.

Critical Accounting Estimates

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be material to the financial statements.

The most significant accounting estimate inherent in the preparation of our financial statements

include the discount rates and weighted average costs of capital used in the fair value of the ManyCam Intangible Assets and in assigning

Estimates made in accordance with GAAP that involve a significant level of estimation uncertainty

and have had or are reasonably likely to have a material impact on our financial condition.

During the year ended December 31, 2023, there

were no critical accounting estimates made by management that would involve a significant level of estimation uncertainty and have had

or are reasonably likely to have a material effect impact on the financial statements condition or results of operations of the Company.

During the year ended December 31, 2022, the most significant accounting estimate inherent in the preparation of the financial statements

included the discount rates and weighted average costs of capital used in the fair value of the ManyCam intangible assets and in assigning

their respective useful lives.

These fair values and estimates were based on a number of factors, including a valuation from an independent

Critical Accounting Polices

The Company’s financial position, results of

operations and cash flows are impacted by the accounting policies the Company has adopted.

In order to get a full understanding of the

Company’s financial statements, one must have a clear understanding of the accounting policies employed.

A summary of the Company’s

critical accounting policies follows:

Subscription Revenue

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, 2022 and 2021, subscriptions were offered in durations of

one-, six- twelve-and twenty four -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.

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

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.

Intangible Assets

The Company acquired amortizable intangible

assets as part of a purchase agreement consisting of internally developed software, intellectual property (trade names, trademarks and

URLs) and subscriber relationships/customer lists.

The 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:

Trade names, trademarks, product names, URLs

Internally developed software

Non-compete agreements

Subscriber/customer relationships

The 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.

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

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.

For additional information, see Note 2 of the

Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K for a summary of significant accounting policies, which

includes our critical accounting policies, and the effect on our financial statements.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET

QUANTITATIVE AND QUALITATIVE DISCLOSURES

ABOUT MARKET RISK

Not applicable.

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 7. Management’s Discussion and Analysis