NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Organization and Description of Business
The accompanying condensed 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”).
The Company is a communications software innovator that powers multimedia
social applications. The Company’s product portfolio includes Paltalk, Camfrog and Tinychat, which together host a large collection
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 holds 14 patents.
The condensed consolidated financial statements
included in this report have been prepared on a going concern basis in accordance with generally accepted accounting principles in the
United States (“GAAP”) and the rules and regulations of the Securities and Exchange Commission (the “SEC”) for
interim financial information. The Company has not included certain information and notes required by GAAP for complete financial statements
pursuant to those rules and regulations, although it believes that the disclosure included herein is adequate to make the information
presented not misleading. The condensed consolidated financial statements contained herein should be read in conjunction with the Company’s
audited consolidated financial statements and the related notes included in the Company’s Annual Report on Form 10-K for the year
ended December 31, 2021, filed with the SEC on March 23, 2022 (the “Form 10-K”).
In the opinion of management, the accompanying
unaudited condensed consolidated financial information contains all normal and recurring adjustments necessary to fairly present the condensed
consolidated balance sheets and statements of operations, cash flows and changes in stockholders’ equity of the Company for the
interim periods presented. The Company’s historical results are not necessarily indicative of future operating results, and the
results for the three months ended March 31, 2022 are not necessarily indicative of results for the year ending December 31, 2022, or
for any other period.
Update on COVID-19
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 were able to support the increased demand
we experienced from the second quarter of 2020 through the year ended December 31, 2021, 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.
On 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. The Company does not expect to incur additional indebtedness under the CARES
Act.
PALTALK, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
2. Summary of Significant Accounting Policies
During the three months ended March 31, 2022,
there were no significant changes made to the Company’s significant accounting policies.
For a detailed discussion about the Company’s significant accounting
policies, see the Form 10-K.
Significant Estimates and Assumptions
The 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 condensed 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. 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.
Revisions to the Company’s estimates may result in increases
or decreases to revenues and income and are reflected in the condensed 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. 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 condensed consolidated statements of operations. There were no contract losses for the periods presented.
Fair Value Measurements
The 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:
● |
Level 1: Fair value measurement of the asset or liability using observable inputs such as quoted prices in active markets for identical assets or liabilities; |
● |
Level 2: 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; and |
● |
Level 3: Fair value measurement of the asset or liability using unobservable inputs that reflect the Company’s own assumptions regarding the applicable asset or liability. |
The 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. Review and approval by management is required as part
of the validation process.
The 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.
PALTALK, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Revenue Recognition
In 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. 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.
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 three months ended March 31, 2022 and 2021, 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 condensed consolidated balance sheets. Deferred revenue at December 31, 2021 was
$1,915,493, of which $727,130 was subsequently recognized as subscription revenue during the three months ended March 31, 2022. The ending
balance of deferred revenue at March 31, 2022 and 2021 was $1,845,853 and $2,023,794, respectively.
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 of purchase. Upon purchase,
the virtual gifts are credited to the users’ account and are under the users’ control. 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
condensed consolidated statements of operations. Virtual gift revenue is presented as deferred revenue in the condensed consolidated balance
sheets until virtual gifts are redeemed. Virtual gift revenue was $1,269,537 and $1,420,130 for the three months ended March 31, 2022
and 2021, respectively. The ending balance of deferred revenue from virtual gifts at March 31, 2022 and 2021 was $331,804 and $349,472,
respectively.
Advertising Revenue
The 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.
PALTALK, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Technology Service Revenue
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.
During 2021, the 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”).
Pursuant to the terms of the YouNow Agreement,
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 was
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.
Given the trading availability of Props tokens
in various active markets, 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. The total net revenue value recognized as earned was
estimated to be $0 and $155,816 for the three months ended March 31, 2022 and 2021, 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 2021. 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.
3. Property and Equipment, Net
Property and equipment, net consisted of the following at March 31,
2022 and December 31, 2021:
| |
March 31, | | |
December 31, | |
| |
2022 | | |
2021 | |
| |
(unaudited) | | |
| |
Computer equipment | |
$ | 311,335 | | |
$ | 866,459 | |
Website development | |
| 2,155,798 | | |
| 3,076,323 | |
Furniture and fixtures | |
| 47,463 | | |
| 47,463 | |
Total property and equipment | |
| 2,514,596 | | |
| 3,990,245 | |
Less: Accumulated depreciation | |
| (2,475,095 | ) | |
| (3,920,646 | ) |
Total property and equipment, net | |
$ | 39,501 | | |
$ | 69,599 | |
Depreciation expense for the three months ended
March 31, 2022 was $30,098 as compared to $48,780 for the three months ended March 31, 2021.
PALTALK, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. Intangible Assets, Net
Intangible assets, net consisted of the following at March 31, 2022
and December 31, 2021:
| |
March 31, 2022 | |
December 31, 2021 |
| |
Gross | |
| |
Net | |
Gross | |
| |
Net |
| |
Carrying | |
Accumulated | |
Carrying | |
Carrying | |
Accumulated | |
Carrying |
| |
Amount | |
Amortization | |
Amount | |
Amount | |
Amortization | |
Amount |
Patents | |
$ | 50,000 | | |
$ | (31,875 | ) | |
$ | 18,125 | | |
$ | 50,000 | | |
$ | (31,251 | ) | |
$ | 18,749 | |
Trade names, trademarks product names, URLs | |
| 555,000 | | |
| (513,023 | ) | |
| 41,977 | | |
| 555,000 | | |
| (509,148 | ) | |
| 45,852 | |
Internally developed software | |
| 1,990,000 | | |
| (1,990,000 | ) | |
| - | | |
| 1,990,000 | | |
| (1,990,000 | ) | |
| - | |
Subscriber/customer relationships | |
| 2,279,000 | | |
| (2,188,725 | ) | |
| 90,275 | | |
| 2,279,000 | | |
| (2,147,058 | ) | |
| 131,942 | |
Total intangible assets | |
$ | 4,874,000 | | |
$ | (4,723,623 | ) | |
$ | 150,377 | | |
$ | 4,874,000 | | |
$ | (4,677,457 | ) | |
$ | 196,543 | |
Amortization expense for the three months ended March 31, 2022 was
$46,166, as compared to $64,084 for the three months ended March 31, 2021. The aggregate amortization expense for each of the next five
years and thereafter is estimated to be $103,778 for the remainder of 2022, $18,000 in 2023, $17,354 in 2024, $2,500 in 2025, $2,500 in
2026 and $6,245 thereafter.
5. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of the following
for the periods presented:
| |
March 31, | | |
December 31, | |
| |
2022 | | |
2021 | |
| |
(unaudited) | | |
| |
Compensation, benefits and payroll taxes | |
$ | 67,038 | | |
$ | 318,150 | |
Other accrued expenses | |
| 26,676 | | |
| 26,291 | |
Total accrued expenses and other current liabilities | |
$ | 93,714 | | |
$ | 344,441 | |
6. Income Taxes
The Company’s provision for income taxes
consists of federal and state taxes, as applicable, in amounts necessary to align the Company’s year-to-date tax provision with
the effective rate that it expects to achieve for the full year. Each quarter the Company updates its estimate of the annual effective
tax rate and records cumulative adjustments as necessary. As of March 31, 2022, our conclusion regarding the realizability of our US deferred
tax assets did not change and we have recorded a full valuation allowance against them.
On March 11, 2021, the American Rescue Plan Act
of 2021 (“American Rescue Plan”) was signed into law to provide additional relief in connection with the ongoing COVID-19
pandemic. The American Rescue Plan includes, among other things, provisions relating to PPP loan expansion, defined pension contributions,
excessive employee remuneration, and the repeal of the election to allocate interest expense on a worldwide basis. Under ASC 740, the
effects of new legislation are recognized upon enactment. The enactment of the American Rescue Plan did not impact on the Company’s
income tax provision.
For the three months ended March 31, 2022, the
Company recorded an income tax provision of $16,031. The effective tax rate for the three months ended March 31, 2022 was (2.22)%. The
effective tax rate differs from the statutory rate of 21% as the Company has concluded that its deferred tax assets are not realizable
on a more-likely-than-not basis.
For the three months ended March 31, 2021, the
Company recorded an income tax provision of $1,100. The effective tax rate for the three months ended March 31, 2021 was 0.11%. The effective
tax rate differs from the statutory rate of 21% as the Company has concluded that its deferred tax assets are not realizable on a more-likely-than-not
basis.
PALTALK, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
7. Stockholders’ Equity
The 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 36,402 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 March 31, 2022, there were 734,614 shares
available for future issuance under the 2016 Plan.
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. As of March 31, 2022,
no shares of common stock had been repurchased by the Company pursuant to the Stock Repurchase Plan.
Stock Options
The following table summarizes the assumptions
used in the Black-Scholes pricing model to estimate the fair value of the options granted during the three months ended March 31, 2022:
Expected volatility |
|
|
173%-182% |
% |
Expected life of option (in years) |
|
|
5.2-6.2 |
|
Risk free interest rate |
|
|
2.53 |
% |
Expected dividend yield |
|
|
0.0 |
% |
The expected life of the options is the period
of time over which employees and non-employees are expected to hold their options prior to exercise. 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.
The following table summarizes stock option activity
during the three months ended March 31, 2022:
| |
| | |
Weighted | |
| |
| | |
Average | |
| |
Number of | | |
Exercise | |
| |
Options | | |
Price | |
Stock Options: | |
| | |
| |
Outstanding at January 1, 2022 | |
| 435,770 | | |
$ | 5.31 | |
Granted | |
| 248,500 | | |
| 2.66 | |
Expired, during the period | |
| (4,755 | ) | |
| 54.51 | |
Outstanding at March 31, 2022 | |
| 679,515 | | |
$ | 4.00 | |
Exercisable at March 31, 2022 | |
| 448,264 | | |
$ | 4.76 | |
At March 31, 2022, there was $551,390 of total
unrecognized compensation expense related to stock options, which is expected to be recognized over a weighted average period of 3.76
years.
On March 31, 2022, the aggregate intrinsic
value of stock options that were outstanding and exercisable was $118,415 and $88,040, respectively. On March 31, 2021, the aggregate
intrinsic value of stock options that were outstanding and exercisable was $272,363 and $167,879, 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
date.
PALTALK, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
During the three months ended March 31, 2022,
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 $2.66 per share. The stock options vest in four equal quarterly installments on the last day of each calendar quarter
in 2022 and have a term of ten years. During the three months ended March 31, 2022, the Company also granted options to employees to purchase
an aggregate of 224,500 shares of common stock. These options have varying vesting dates ranging between the grant date and up to four
years, have a term of ten years and have an exercise price of $2.66. The aggregate fair value for the options granted during the three
months ended March 31, 2022 and 2021 was $636,957 and $78,522, respectively.
Stock-based compensation expense for the Company’s stock options
included in the condensed consolidated statements of operations was as follows:
| |
Three Months Ended | |
| |
March 31, | |
| |
2022 | | |
2021 | |
Cost of revenue | |
$ | 12,864 | | |
$ | 182 | |
Sales and marketing expense | |
| 119 | | |
| 7 | |
Product development expense | |
| 3,469 | | |
| 3,044 | |
General and administrative expense | |
| 136,019 | | |
| 28,135 | |
Total stock compensation expense | |
$ | 152,471 | | |
$ | 31,368 | |
Treasury Shares
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. 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 condensed consolidated balance sheets. In addition, during the year ended December 31, 2021, 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 and March 31,
2022, the Company had 31,963 shares of its common stock classified as treasury shares on the Company’s condensed consolidated balance
sheets.
8. Net (Loss) Income Per Share
Basic earnings and net (loss) income per share
are computed by dividing the net (loss) 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 three months ended March 31, 2022 and 2021,
679,515 and 588,407 of shares issuable upon the exercise of outstanding stock options were not included in the computation of diluted
net (loss) income per share from operations because their inclusion would be antidilutive.
The following table summarizes the net (loss) income per share calculation
for the periods presented:
|
|
Three Months Ended
March 31, |
|
|
|
2022 |
|
|
2021 |
|
Net (loss) income from operations – basic and diluted |
|
$ |
(738,945 |
) |
|
$ |
916,729 |
|
Weighted average shares outstanding – basic |
|
|
9,832,157 |
|
|
|
6,906,454 |
|
Weighted average shares outstanding – diluted |
|
|
9,832,157 |
|
|
|
6,906,454 |
|
Per share data: |
|
|
|
|
|
|
|
|
Basic from operations |
|
$ |
(0.08 |
) |
|
$ |
0.13 |
|
Diluted from operations |
|
$ |
(0.08 |
) |
|
$ |
0.13 |
|
PALTALK, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
9. Leases
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 Company’s monthly office rent payments under the lease are currently
approximately $7,081 per month. The lease extension resulted in an increase in the Company’s right-of-use (“ROU”) assets
and lease liabilities of $0.2 million, using a discount rate of 2.30%.
As of March 31, 2022, the Company had no long-term
leases that were classified as financing leases. As of March 31, 2022, the Company did not have additional operating and financing leases
that had not yet commenced.
At March 31, 2022, the Company had operating lease
liabilities of approximately $220,000 and ROU assets of approximately $220,000, which are included in the condensed consolidated balance
sheets.
Total rent expense for the three months ended
March 31, 2022 was $23,332, of which $1,500 was sublease income. Total rent expense for three months ended March 31, 2021 was $24,768,
of which $36,095 was sublease income. Rent expense is recorded under general and administrative expense in the condensed consolidated
statements of operations.
The following table summarizes the Company’s operating leases
for the periods presented:
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2022 |
|
|
2021 |
|
Cash paid for amounts included in the measurement of operating lease liabilities: |
|
$ |
19,905 |
|
|
$ |
16,133 |
|
Weighted average assumptions: |
|
|
|
|
|
|
|
|
Remaining lease term |
|
|
2.7 |
|
|
|
0.7 |
|
Discount rate |
|
|
2.3 |
% |
|
|
3.5 |
% |
As of March 31, 2022, future minimum payments under non-cancelable
operating leases were as follows:
For the year ending December 31, | |
Amount | |
2022 | |
| 63,731 | |
2023 | |
| 84,975 | |
2024 | |
| 77,894 | |
Total | |
$ | 226,600 | |
Less: present value adjustment | |
| (7,014 | ) |
Present value of minimum lease payments | |
$ | 219,586 | |
PALTALK, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
10. Commitments and Contingencies
Officer Employment Agreements
On March 23, 2022, the Company entered into Amended and Restated Employment
Agreements with the Company’s 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. The CEO 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.
Patent Litigation
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. Patent No. 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.
Legal Proceedings
The 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. No reserve was deemed necessary as of March
31, 2022.
11. Subsequent Events
Management has evaluated subsequent events or
transactions occurring through the date the condensed consolidated financial statements were issued and determined that no events or transactions
are required to be disclosed herein.