PALTALK, INC. (Form: 10-Q, Received: 08/06/2020 17:23:08)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2020

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to ________

Commission File Number 000-52176

PALTALK, INC.

(Exact name of registrant as specified in its charter)

Delaware		20-3191847
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

30 Jericho Executive Plaza Suite 400E
Jericho, NY 11753

(Address of principal executive offices) (Zip Code)

(212) 967-5120

(Registrant’s telephone number, including area code)

PeerStream, Inc.

122 East 42nd Street

New York, NY 10168

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act: None

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
—		—		—

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class		Outstanding at August 1, 2020
Common Stock, par value $0.001 per share		6,868,954*

* Excludes 9,950 shares of common stock that are held as treasury stock by Paltalk, Inc.

PALTALK, INC. QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTER ENDED JUNE 30, 2020

Table of Contents

		Page Number

	PART I. FINANCIAL INFORMATION

ITEM 1.	Financial Statements	1

	Condensed Consolidated Balance Sheets as of June 30, 2020 (Unaudited) and December 31, 2019	1

	Condensed Consolidated Statements of income for the Three and Six Months Ended June 30, 2020 and 2019 (Unaudited)	2

	Condensed Consolidated Statement of Changes in Stockholders’ Equity for the Three and Six Months Ended June 30, 2020 and 2019 (Unaudited)	3

	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2020 and 2019 (Unaudited)	4

	Notes to Condensed Consolidated Financial Statements (Unaudited)	5

ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15

ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	27

ITEM 4.	Controls and Procedures	27

	PART II. OTHER INFORMATION

ITEM 1.	Legal Proceedings	28

ITEM 1A.	Risk Factors	28

ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	29

ITEM 3.	Defaults Upon Senior Securities	29

ITEM 4.	Mine Safety Disclosures	29

ITEM 5.	Other Information	29

ITEM 6.	Exhibits	30

Effective May 15, 2020, we changed our name from “PeerStream, Inc.” to “Paltalk, Inc.” Unless the context otherwise indicates, references to “Paltalk,” “PeerStream,” “we,” “our,” “us” and the “Company” refer to Paltalk, Inc. and its subsidiaries on a consolidated basis.

Paltalk, Peerstream, our logo and other trademarks or service marks appearing in this report are the property of Paltalk, Inc. Trade names, trademarks and service marks of other companies appearing in this report are the property of their respective owners. Solely for convenience, the trademarks, service marks and trade names included in this report are without the ®, or other applicable symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensors to these trademarks, service marks and trade names.

Unless otherwise indicated, operational metrics such as those related to active subscribers or active users are based on internally-derived metrics for users across all platforms through which our applications are accessed.

EXPLANATORY NOTE

Name Change

Effective May 15, 2020, we changed our name from “PeerStream, Inc.” to “Paltalk, Inc.” In connection with the name change, we also changed our trading symbol on the OTCQB Marketplace from “PEER” to “PALT.” This name change takes us back to our roots and reflects our primary focus on our current operations, Paltalk and Camfrog, which together are host to one of the world’s largest collections of video-based communities.

FORWARD-LOOKING STATEMENTS

Certain statements contained in this Quarterly Report on Form 10-Q constitute “forward-looking statements” as defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that are based on current expectations, estimates, forecasts and assumptions and are subject to risks and uncertainties. Words such as “anticipate,” “assume,” “began,” “believe,” “budget,” “continue,” “could,” “estimate,” “expect,” “forecast,” “goal,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “seek,” “should,” “target,” “would” and variations of such words and similar expressions are intended to identify such forward-looking statements. All forward-looking statements speak only as of the date on which they are made. Such forward-looking statements are subject to certain risks, uncertainties and assumptions relating to factors that could cause actual results to differ materially from those anticipated in such statements, including, without limitation, the following:

	●	the impact of the recent coronavirus outbreak on our results of operations and our business;

	●	our ability to effectively market and generate revenue from our applications;

	●	our ability to generate and maintain active subscribers and to effectively monetize our user base;

	●	the intense competition in the industries in which our business operates and our ability to effectively compete with existing competitors and new market entrants;

	●	legal and regulatory requirements related to holding and distributing cryptocurrencies and accepting cryptocurrencies as a method of payment for our services;

	●	risks related to our holdings of digital tokens, including risks related to the volatility of the trading price of the digital tokens and our ability to convert digital tokens into fiat currency;

	●	the dependence of our applications on mobile platforms and operating systems that we do not control, including our heavy reliance on the platforms of Apple Inc., Facebook, Inc. and Alphabet Inc. and their ability to discontinue, limit or restrict access to their platforms by us or our applications, change their terms and conditions or other policies or features (including restricting methods of collecting payments, sending notifications or placing advertisements), establish more favorable relationships with one or more of our competitors or develop applications or features that compete with our applications;

	●	our ability to obtain additional capital or financing when and if necessary, to execute our business plan, including through offerings of debt or equity;

●

our ability to develop, establish and maintain strong brands;

	●	the effects of current and future government regulation, including laws and regulations regarding the use of the internet, privacy, cybersecurity and protection of user data and blockchain and cryptocurrency technologies;

	●	our ability to offset fees associated with the distribution platforms that host our applications;

●

our reliance on our executive officers and consultants;

iii

●

our reliance on internally derived data to accurately report user metrics and other measures of our performance;

●

our ability to release new applications on schedule or at all, as well as our ability to improve upon existing applications;

	●	our ability to update our applications to respond to rapid technological changes;

	●	our ability to protect our intellectual property rights;

●

our ability to adapt or modify our applications for the international market and derive revenue therefrom;

●

the ability of foreign governments to restrict access to our applications or impose new regulations;

●

the reliance of our mobile applications on having a mobile data plan and/or Wi-Fi access to gain internet connectivity;

●

our reliance on third-party investor relations firms to help create awareness of our Company and compliance by such third parties with regulatory requirements related to promotional reports;

●

the effect of security breaches, computer viruses and computer hacking attacks;

●

our reliance upon credit card processors and related merchant account approvals and the impact of chargeback liabilities that we may face from credit card processors;

●

the impact of any claim that we have infringed on intellectual property rights of others;

●

our ability to effectively integrate companies and properties that we acquire;

●

the possibility that our users or third parties may be physically or emotionally harmed following interaction with other users;

●

the risk that we may face litigation resulting from the transmission of information through our applications;

●

our ability to attract and retain qualified employees and consultants; and

●

our ability to maintain effective internal controls over financial reporting.

For a more detailed discussion of these and other factors that may affect our business, see the discussion in “Item 1A. Risk Factors” in Part II of this report and “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part I of this report and the risk factors set forth in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, which was filed with the Securities and Exchange Commission on March 24, 2020. We caution that the foregoing list of factors is not exclusive, and new factors may emerge, or changes to the foregoing factors may occur, that could impact our business. We do not undertake any obligation to update any forward-looking statement, whether written or oral, relating to the matters discussed in this report, except to the extent required by applicable securities laws.

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

PALTALK, INC.

(F/K/A PEERSTREAM, INC.)

CONDENSED CONSOLIDATED BALANCE SHEETS

	June 30, 2020			December 31, 2019
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	4,378,865		$	3,427,058
Accounts receivable, net of allowances and reserves of $23,832 as of June 30, 2020 and December 31, 2019		12,786			130,686
Digital tokens receivable		112,000			-
Prepaid expense and other current assets		181,858			167,441
Total current assets		4,685,509			3,725,185
Operating lease right-of-use assets		96,222			685,042
Property and equipment, net		448,333			620,059
Goodwill		6,326,250			6,326,250
Intangible assets, net		499,724			627,891
Digital tokens		93,036			148,229
Other assets		13,937			86,876
Total assets	$	12,163,011		$	12,219,532

Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	922,884		$	1,007,851
Accrued expenses and other current liabilities		251,245			434,739
Operating lease liabilities, current portion		61,276			178,479
Term debt, current portion		253,250			-
Deferred subscription revenue		1,969,563			1,829,493
Total current liabilities		3,458,218			3,450,562
Term debt, non-current portion		253,250			-
Operating lease liabilities, non-current portion		34,946			583,075
Total liabilities		3,746,414			4,033,637
Commitments and Contingencies
Stockholders’ equity:
Common stock, $0.001 par value, 25,000,000 shares authorized; and 6,878,904 shares issued and 6,868,954 and 6,877,004 shares outstanding as of June 30, 2020 and December 31, 2019, respectively		6,879			6,879
Treasury stock, 9,950 and 1,900 shares, at par as of June 30, 2020 and December 31, 2019, respectively		(10,859	)		(2,015	)
Additional paid-in capital		21,427,771			21,281,382
Accumulated deficit		(13,007,194	)		(13,100,351	)
Total stockholders’ equity		8,416,597			8,185,895
Total liabilities and stockholders’ equity	$	12,163,011		$	12,219,532

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

PALTALK, INC.

(F/K/A PEERSTREAM, INC.)

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019
Revenues:
Subscription revenue	$	3,210,619		$	3,049,900		$	5,860,742		$	6,054,255
Advertising revenue		57,856			110,869			113,523			231,359
Technology service revenue		112,000			1,712,105			126,952			3,460,435
Total revenues		3,380,475			4,872,874			6,101,217			9,746,049
Costs and expenses:
Cost of revenue		685,430			892,470			1,308,154			1,844,689
Sales and marketing expense		221,416			230,996			413,086			608,147
Product development expense		1,255,884			1,711,974			2,506,580			3,483,539
General and administrative expense		687,083			1,614,387			1,706,337			3,491,859
Total costs and expenses		2,849,813			4,449,827			5,934,157			9,428,234
Income from continuing operations		530,662			423,047			167,060			317,815
Other income (expense), net		4,589			-			(79,880	)		-
Interest income (expense), net		(1,210	)		24,837			10,977			54,794
Income from continuing operations before provision for income taxes		534,041			447,884			98,157			372,609
Income tax expense		(2,500	)		(163,490	)		(5,000	)		(4,500	)
Net income from continuing operations		531,541			284,394			93,157			368,109
Discontinued Operations:
Gain on sale from discontinued operations		-			-			-			826,770
Loss from discontinued operations		-			-			-			(104,880	)
Income tax benefit on discontinued operations		-			158,990			-			-
Net income from discontinued operations		-			158,990			-			721,890
Net income	$	531,541		$	443,384		$	93,157		$	1,089,999

Basic net income per share of common stock:
Continuing operations	$	0.08		$	0.04		$	0.01		$	0.05
Discontinued operations		-			0.02			-			0.11
Basic net income per share of common stock	$	0.08		$	0.06		$	0.01		$	0.16
Diluted net income per share of common stock:
Continuing operations	$	0.08		$	0.04		$	0.01		$	0.05
Discontinued operations		-			0.02			-			0.11
Diluted net income per share of common stock	$	0.08		$	0.06		$	0.01		$	0.16
Weighted average number of shares of common stock used in calculating net income per share of common stock:
Basic		6,869,027			6,874,679			6,871,299			6,874,314
Diluted		6,869,027			6,886,900			6,871,299			6,875,195

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

PALTALK, INC.

(F/K/A PEERSTREAM, INC.)

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

													Retained
											Additional		Earnings			Total
	Common		Stock		Treasury			Stock			Paid-		(Accumulated			Stockholders’
	Shares		Amount		Shares			Amount			in Capital		Deficit)			Equity
Balance on December 31, 2018		6,868,679	$	6,869		-			-		$	19,867,259	$	(4,720,291	)	$	15,153,837
Stock-based compensation expense for restricted stock awards and stock options		-		-		-			-			452,525		-			452,525
Issuance of common stock for consulting services		6,000		6		-			-			34,494		-			34,500
Net income		-		-		-			-			-		646,615			646,615
Balance at March 31, 2019		6,874,679	$	6,875		-			-		$	20,354,278	$	(4,073,676	)	$	16,287,477
Stock-based compensation expense for restricted stock awards and stock options		-		-		-			-			443,661		-			443,661
Net income		-		-		-			-			-		443,384			443,384
Balance at June 30, 2019		6,874,679	$	6,875		-			-		$	20,797,939	$	(3,630,292	)	$	17,174,522

Balance at December 31, 2019		6,878,904	$	6,879		(1,900	)	$	(2,015	)	$	21,281,382	$	(13,100,351	)	$	8,185,895
Stock-based compensation expense		-		-		-			-			89,206		-			89,206
Repurchases of common stock		-		-		(6,600	)		(7,240	)		-		-			(7,240	)
Net loss		-		-		-			-			-		(438,384	)		(438,384	)
Balance at March 31, 2020		6,878,904	$	6,879		(8,500	)	$	(9,255	)	$	21,370,588	$	(13,538,735	)	$	7,829,477
Stock-based compensation expense		-		-		-			-			57,183		-			57,183
Repurchases of common stock		-		-		(1,450	)		(1,604	)		-		-			(1,604	)
Net income		-		-		-			-			-		531,541			531,541
Balance at June 30, 2020		6,878,904	$	6,879		(9,950	)	$	(10,859	)	$	21,427,771	$	(13,007,194	)	$	8,416,597

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

PALTALK, INC.

(F/K/A PEERSTREAM, INC.)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Six Months Ended June 30,
	2020			2019
Cash flows from operating activities:
Net income	$	93,157		$	1,089,999
Less: Income from discontinued operations		-			721,890
Income from continuing operations	$	93,157		$	368,109
Adjustments to reconcile net income from continuing operations to net cash (used in) provided by operating activities of continuing operations:
Depreciation of property and equipment		171,726			177,435
Amortization of intangible assets		128,167			128,165
Amortization of operating lease right-of-use assets		76,828			-
Gain on lease termination		(141,001	)		-
Realized loss from the sale of digital tokens		23,838			-
Write-off of note receivable		56,042			-
Stock-based compensation		146,389			896,186
Common stock issued for consulting services		-			34,500
Changes in operating assets and liabilities:
Credit card holdback receivable		-			64,638
Accounts receivable		117,900			191,204
Digital tokens receivable		(112,000	)		-
Operating lease liability		(80,419	)		-
Prepaid expenses and other current assets		(14,417	)		(143,482	)
Other assets		16,897			(34,459	)
Accounts payable, accrued expenses and other current liabilities		(200,382	)		(1,689,591	)
Deferred subscription revenue		140,070			8,796
Deferred technology service revenue		-			(3,379,435	)
Other liabilities		-			43,910
Net cash provided by (used in) continuing operating activities		422,795			(3,334,024	)
Net cash used in discontinued operating activities		-			(39,967	)
Net cash provided by (used in) operating activities		422,795			(3,373,991	)
Cash flows from investing activities:
Payment for property and equipment, including website development, net		-			(195,497	)
Proceeds from the sale of digital tokens		31,356			56,100
Net cash used in continuing investing activities		-			(139,397	)
Net cash provided by discontinued investing activities		-			1,600,000
Net cash provided by investing activities		31,356			1,460,603
Cash flows from financing activities:
Borrowings of term debt		506,500
Purchase of treasury stock		(8,844	)		-
Net cash provided by financing activities		497,656			-
Net increase (decrease) in cash and cash equivalents		951,807			(1,913,388	)
Balance of cash and cash equivalents at beginning of period		3,427,058			6,555,376
Balance of cash and cash equivalents at end of period	$	4,378,865		$	4,641,988

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

PALTALK, INC.

(F/K/A PEERSTREAM, INC.)

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”).

Effective May 15, 2020, the Company changed its name from “PeerStream, Inc.” to “Paltalk, Inc.” In connection with the name change, the Company changed its trading symbol on the OTCQB Marketplace from “PEER” to “PALT.” This name change takes the Company back to its roots and reflects the Company’s primary focus on its current operations, Paltalk and Camfrog, which together are host to one of the world’s largest collections of video-based communities.

The Company is a communications software innovator that powers multimedia social applications. The Company’s product portfolio includes Paltalk and Camfrog, which together host one of the world’s largest collections of video-based communities. The Company’s other products include Tinychat and Vumber. The Company has an over 20-year history of technology innovation and holds 18 patents.

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, 2019, filed with the SEC on March 24, 2020 (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 sheet, results of operations, cash flows and changes in the 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 six months ended June 30, 2020 are not necessarily indicative of results for the year ending December 31, 2020, or for any other period.

2.	Summary of Significant Accounting Policies

For a detailed discussion about the Company’s significant accounting policies, see the Form 10-K.

During the six months ended June 30, 2020, there were no significant changes made to the Company’s significant accounting policies.

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, collectability of the Company’s accounts receivable, measurements of proportional performance under certain service contracts, subscription revenues net of refunds, credits, and known and estimated credit card chargebacks, the valuation allowance on deferred tax assets, fair value of digital tokens and impairment assessment of goodwill. 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.

Recent Accounting Pronouncements

In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. ASU 2019-12 is effective for fiscal years beginning after December 15, 2021. The Company has not early adopted ASU 2019-12 and is currently evaluating its impact on the Company’s financial position, results of operations, and cash flows.

PALTALK, INC.

(F/K/A PEERSTREAM, INC.)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Revenue

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 six months ended June 30, 2020 and 2019, subscriptions were offered in durations of one-, three-, six- and twelve- month terms. All subscription fees, however, are paid by credit card at the origination of the subscription regardless of the term of the subscription. Revenues from multi-month subscriptions are recognized on a straight-line basis over the period where the service is offered to the customer, indicated by length of the subscription term purchased. The unearned portion of subscription revenue is presented as deferred revenue in the accompanying condensed consolidated balance sheets. The deferred revenue at December 31, 2019 was $1,829,493, of which $1,115,419 was subsequently recognized as subscription revenue during the six months ended June 30, 2020. The ending balance of deferred revenue at June 30, 2020 was $1,969,563.

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’ utilization of such at the fixed transaction price and included in subscription revenue in the accompanying condensed consolidated statements of income. Virtual gift revenue was $1,427,373 and $2,642,434 for the three and six months ended June 30, 2020, respectively. Virtual gift revenue was approximately $1,478,239 and $2,899,073 for the three and six months ended June 30, 2019, respectively. The ending balance of deferred revenue from virtual gifts at June 30, 2020 and 2019 was $240,502 and $0, 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.

Technology Service Revenue

ProximaX Agreement

During 2019, revenue included as technology services revenue was revenue that was recognized under the Company’s technology services agreement (the “ProximaX Agreement”) with ProximaX Limited (“ProximaX”) and was recognized based upon proportional performance using labor hours as the unit of measurement. Pursuant to the terms of the ProximaX Agreement, ProximaX agreed to pay the Company, among other things, up to an aggregate of $10.0 million of cash or certain highly liquid cryptocurrencies in exchange for the Company’s services, $5.0 million of which was paid in May 2018, $2.5 million of which was due upon completion the second development milestone set forth in the ProximaX Agreement and $2.5 million of which was due upon completion of the third development milestone set forth in the ProximaX Agreement. The total upfront fee was recognized as revenue under the input method based on proportional performance using labor hours as the unit of measurement.

Effective June 24, 2019, the Company and ProximaX entered into an agreement to terminate the ProximaX Agreement (the “Termination Agreement”) and provide for payment terms for the remaining $2.5 million due under the ProximaX Agreement. The portion of the upfront fee that remained unrecognized as of the termination of the ProximaX Agreement was $1.6 million and was recognized as revenue upon such termination, in addition to the $1.7 million of revenue recognized in the first quarter of 2019. Since there is no assurance of collectability on the remaining payments, revenue is being recognized as the payments under the Termination Agreement are received. For the six months ended June 30, 2020, the Company recognized approximately $15.0 thousand in revenue in connection with payments received under the Termination Agreement.

PALTALK, INC.

(F/K/A PEERSTREAM, INC.)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

YouNow Agreement

During the second quarter of 2020, the Company recorded revenue in connection with its agreement to serve as a launch partner with YouNow, Inc. (“YouNow”) and to integrate YouNow’s props infrastructure (the “Props platform”) into its Camfrog and Paltalk applications (as amended, the “YouNow Agreement”). Revenue from the YouNow Agreement is included in technology services revenue.

Pursuant to the terms of the YouNow Agreement, YouNow agreed to pay the Company, in exchange for the Company’s services, an aggregate of 10.5 million cryptographic props tokens (“Props tokens”) upon the achievement of certain milestones as follows: (i) 3.0 million Props tokens upon execution of the YouNow Agreement, (ii) 4.0 million Props tokens upon the integration of the Props platform in the Company’s Camfrog application and (iii) 3.5 million Props tokens due upon the integration of the Props platform in the Paltalk application. In the determining the value of the contract, the Company converted the Props tokens into U.S. dollars using an independent third-party valuation. As of June 30, 2020, the Props tokens were estimated to have a price equal to $0.02 per token (see Note 7 for additional information on the fair value of the Props tokens). The total contract value to be recognized was estimated to be $210,000 which is recognized based on the completion dates of the integration services performed.

The upfront fee is recognized as revenue under the output method based on the direct measurements of the value of services transferred to date to the customer, relative to the remaining services under the contract. During the three and six months ended June 30, 2020, the Company recognized $32,000 of the upfront fee and $80,000 from the completion of the first integration milestone as technology services revenue under the condensed consolidated statements of income and digital tokens receivable under the condensed consolidated balance sheets.

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 revenues that will be generated by the contract and are included in cost of revenues in the Company’s condensed consolidated statements of income. There were no contract losses for the periods presented.

3.	Discontinued Operations

On January 31, 2019, the Company entered into an Asset Purchase Agreement with The Dating Company, LLC, pursuant to which the Company sold substantially all of the assets related to its online dating services business under the domain names FirstMet, 50more, and The Grade (collectively, the “Dating Services Business”) for a cash purchase price of $1.6 million. The closing of the asset sale was effective as of January 31, 2019.

In the first quarter of 2019, management determined that the disposal of the Dating Services Business met the criteria for presentation as discontinued operations. Accordingly, the results of the Dating Services Business are presented as discontinued operations in our condensed consolidated statements of income and are excluded from continuing operations for all periods presented. In addition, the assets and liabilities of the Dating Services Business are classified as held for sale in our condensed consolidated balance sheets for all periods presented.

The operations of the Dating Services Business are included in our results as discontinued operations through January 31, 2019, the date of sale.

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

	Six Months Ended
	June 30,
	2020		2019
Revenues	$	-	$	440,225
Costs of revenue		-		(115,338	)
Sales and marketing expense		-		(270,200	)
Product development expense		-		(76,845	)
General and administrative expense		-		(82,722	)
Loss from discontinued operations	$	-	$	(104,880	)

There were no major line items included in loss from discontinued operations for the Dating Services Business for the three months ended June 30, 2020 and 2019.

PALTALK, INC.

(F/K/A PEERSTREAM, INC.)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

4.	Property and Equipment, Net

Property and equipment, net consisted of the following at June 30, 2020 and December 31, 2019:

	June 30, 2020			December 31, 2019
	(unaudited)
Computer equipment	$	3,706,017		$	3,706,017
Website development		3,076,323			3,076,323
Furniture and fixtures		89,027			89,027
Leasehold improvements		32,726			32,726
Total property and equipment		6,904,093			6,904,093
Less: Accumulated depreciation		(6,455,760	)		(6,284,034	)
Total property and equipment, net	$	448,333		$	620,059

Depreciation expense for the three and six months ended June 30, 2020 was $82,866 and $171,726, respectively, as compared to $88,820 and $177,435 for the three and six months ended June 30, 2019, respectively.

5.	Goodwill

The Company tests goodwill and indefinite-lived intangible assets for impairment annually and whenever events or circumstances arise that indicate an impairment may exist.

The Company recorded $6,760,222 of goodwill impairment for the year ended December 31, 2019 due to a sustained decrease in market price per share of the Company’s common stock. At December 31, 2019, the market price per share of the Company’s common stock declined to $1.29, and as such, the Company tested for an impairment and concluded that the goodwill should be reduced as result of the decline in the market price per share and fair value of the reporting unit.

The Company determined there were no indicators that would lead to a test for impairment during the six months ended June 30, 2020. Goodwill was $6,326,250 at June 30, 2020 and December 31, 2019.

6.	Intangible Assets, Net

Intangible assets, net consisted of the following at June 30, 2020 and December 31, 2019:

	June 30, 2020							December 31, 2019
	(unaudited)
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Patents	$	50,000	$	(27,500	)	$	22,500	$	50,000	$	(26,250	)	$	23,750
Trade names, trademarks product names, URLs		555,000		(474,230	)		80,771		555,000		(446,479	)		108,521
Internally developed software		1,990,000		(1,975,488	)		14,512		1,990,000		(1,959,655	)		30,345
Subscriber/customer relationships		2,279,000		(1,897,058	)		381,942		2,279,000		(1,813,725	)		465,275
Total intangible assets	$	4,874,000	$	(4,374,276	)	$	499,724	$	4,874,000	$	(4,246,109	)	$	627,891

Amortization expense for the three and six months ended June 30, 2020 was $64,083 and $128,167, respectively, as compared to $64,083 and $128,165 for the three and six months ended June 30, 2019, respectively. The estimated aggregate amortization expense for each of the next five years and thereafter will be $118,514 in 2020, $184,667 in 2021, $149,944 in 2022, $18,000 in 2023, $17,354 in 2024 and $11,245 thereafter.

PALTALK, INC.

(F/K/A PEERSTREAM, INC.)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

7.	Digital Tokens

Digital tokens consist of XPX tokens received in connection with the ProximaX Agreement and the Props tokens received in connection with the YouNow Agreement. Given that there is limited precedent regarding the classification and measurement of cryptocurrencies and other digital tokens under current GAAP, the Company has determined to account for these tokens as indefinite-lived intangible assets in accordance with ASC 350, Intangibles-Goodwill and Other until further guidance is issued by the FASB.

XPX Tokens

Indefinite-lived intangible assets are recorded at cost and are not subject to amortization but shall be tested for impairment annually and more frequently if events or changes in circumstances indicate that it is more likely than not that the asset is impaired. If, at the time of an impairment test, the carrying amount of an intangible asset exceeds its fair value, an impairment loss in an amount equal to the excess is recognized. Fair value of the digital tokens had been based on the quoted market prices for the XPX tokens.

During the six months ended June 30, 2020, the Company sold 27,881,674 digital tokens for proceeds of $31,356. The recorded loss of approximately $23,800 is included under other income (expense), net in the condensed consolidated statements of income.

Props Tokens Receivable

To calculate the fair value of the Props tokens received and receivable pursuant to the YouNow Agreement, the Company used the backsolve method, which utilizes the option pricing method to calculate the implied value of the Props tokens based on the recent transaction price. The backsolve method takes into account the strike price of the token warrant agreement and then determines the allocated value of the tokens as though it were a basket purchase.

The implied fair value of the Props tokens represents a marketable basis of value. As the Props tokens do not currently have access to a liquid marketplace, a discount for lack of marketability was applied to the implied fair value using a protective put calculation. A summary of the key inputs used in the backsolve model are summarized as follows:

Maturity (time until an exit or liquidity)	1 year
Volatility		197.0	%
Risk free rate of return		0.16	%

The basic logic of the protective put approach is supported by the notion that the holder of a nonmarketable security can effectively purchase liquidity by purchasing a put option on the security. Therefore, the non-marketable value of a security is its value on a marketable basis, less the value of the hypothetical put option. The put option calculation relies on the Black-Scholes option pricing model, which utilizes volatility from comparable utility tokens, an estimated time to maturity (or liquidity), and the risk-free rate commensurate with that maturity.

The Props tokens received and receivable from YouNow are intangible assets that are accounted for at cost, less impairment charges. According to the guidance the holder cannot only compare the carrying value to fair value at the reporting period, but instead must assess impairment daily. As a result, the Company will use the amount equal the lowest price during the period in which the Props tokens are held as the carrying amount.

8.	Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following at June 30, 2020 and December 31, 2019:

	June 30,		December 31,
	2020		2019
	(unaudited)
Compensation, benefits and payroll taxes	$	126,400	$	347,601
Income tax payable		22,672		17,672
Other accrued expenses		102,173		69,466
Total accrued expenses and other current liabilities	$	251,245	$	434,739

PALTALK, INC.

(F/K/A PEERSTREAM, INC.)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

9.	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 June 30, 2020, 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 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) was enacted in response to COVID-19 pandemic. Under ASC 740, the effects of changes in tax rates and laws are recognized in the period which the new legislation is enacted. The CARES Act made various tax law changes including, among other things, (i) increasing the limitation under IRC Section 163(j) for 2019 and 2020 to permit additional expensing of interest (ii) enacting a technical correction so that qualified improvement property can be immediately expensed under IRC Section 168(k), (iii) making modifications to the federal net operating loss rules including permitting federal net operating losses incurred in 2018, 2019, and 2020 to be carried back to the five preceding taxable years in order to generate a refund of previously paid income taxes and (iv) enhancing recoverability of AMT tax credits. Given the Company’s full valuation allowance position, the CARES Act did not have a material impact on the financial statements.

For the three and six months ended June 30, 2020, the Company recorded an income tax provision from continuing operations of $2,500 and $5,000, respectively, primarily related to state and local taxes. The effective tax rate for the three and six months ended June 30, 2020 was 0.39% and 2.38%, respectively. 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 June 30, 2019, the Company recorded an income tax provision of $163,490 from continuing operations. The Company recorded an income tax provision for state and local taxes and reversed the income tax benefit recorded during the three months ended March 31, 2019 as the intra-period allocation guidance no longer applied as the Company reported income from both continuing and discontinued operations. For the six-months ended June 30, 2019, the Company recorded an income tax provision of $4,500. The effective tax rate for the three and six months ended June 30, 2019 was 36.5% and 1.21%, respectively.

10.

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 121,930 shares of the Company’s common stock may be issued pursuant to outstanding options awarded under the 2011 Plan; however, no additional awards may be granted under such plan. The Paltalk, Inc. 2016 Long-Term Incentive Plan (the “2016 Plan”) was adopted by the Company’s stockholders on May 16, 2016 and permits the Company to award stock options (both incentive stock options and non-qualified stock options), stock appreciation rights, restricted stock, restricted stock units, performance awards, dividend equivalent rights, and other stock-based awards and cash-based incentive awards to its employees (including an employee who is also a director or officer under certain circumstances), non-employee directors and consultants. The maximum number of shares of common stock that may be issued pursuant to awards under the 2016 Plan is 1,300,000 shares, 100% of which may be issued pursuant to incentive stock options. In addition, the maximum number of shares of common stock that may be issued under the 2016 Plan may be increased by an indeterminate number of shares of common stock underlying outstanding awards issued under the 2011 Plan that are forfeited, expired, cancelled or settled in cash. As of June 30, 2020, there were 768,217 shares available for future issuance under the 2016 Plan.

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.

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 six months ended June 30, 2020:

Expected volatility	188.0	%
Expected life of option (in years)	5.3
Risk free interest rate	0.59	%
Expected dividend yield	0.0	%

PALTALK, INC.
(F/K/A PEERSTREAM, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

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 six months ended June 30, 2020:

				Weighted
	Number of			Average Exercise
	Options			Price
Stock Options:
Outstanding at January 1, 2020		1,021,243		$	4.82
Granted		24,000			0.80
Forfeited or canceled, during the period		(268,914	)		3.65
Expired, during the period		(68,511	)		3.52
Outstanding at June 30, 2020		707,818		$	5.25
Exercisable at June 30, 2020		522,154		$	6.11

At June 30, 2020, there was $233,968 of total unrecognized compensation expense related to stock options, which is expected to be recognized over a weighted average period of 1.5 years.

On June 30, 2020, the aggregate intrinsic value of stock options that were outstanding and exercisable was $7,200 and $3,600, respectively. On June 30, 2019, the aggregate intrinsic value of stock options that were outstanding and exercisable was $154,514 and $99,340, 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.

During the six months ended June 30, 2020, the Company granted options to members of the Board of Directors to purchase an aggregate 24,000 shares of common stock at an exercise price of $0.80 per share. The options vest in four equal quarterly installments on the last day of each calendar quarter in 2020 and have a term of ten years.

The aggregate fair value for the options granted during the six months ended June 30, 2020 and 2019 was $18,664 and $337,598, respectively.

Stock-based compensation expense for the Company’s stock options included in the condensed consolidated statements of income is as follows:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2020		2019		2020		2019
Cost of revenue	$	378	$	363	$	751	$	724
Sales and marketing expense		20		45		40		90
Product development expense		3,839		10,065		11,220		99,809
General and administrative expense		52,946		247,814		134,378		424,815
Total stock compensation expense	$	57,183	$	258,287	$	146,389	$	525,438

11.

Net Income Per Share

Basic net income per share of common stock is computed based upon the number of weighted average shares of common stock outstanding as defined by ASC Topic 260, Earnings Per Share. Diluted net income per share of common stock includes the dilutive effects of stock options and stock equivalents. To the extent stock options are antidilutive, they are excluded from the calculation of diluted net income per share of common stock. For the three and six months ended June 30, 2020, 707,818 of shares upon the exercise of outstanding stock options were not included in the computation of diluted net income per share for continuing operations because their inclusion would be antidilutive. For the three and six months ended June 30, 2019, 1,045,468 and 1,056,808 shares upon the exercise of outstanding stock options, respectively, and 79,286 shares of unvested restricted stock were not included in the computation of diluted net income per share for continuing operations because their inclusion would be antidilutive.

PALTALK, INC.
(F/K/A PEERSTREAM, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

The following table summarizes the net income per share calculation:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2020		2019		2020		2019
Net income from continuing operations – basic and diluted	$	531,541	$	284,394	$	93,157	$	368,109
Weighted average shares outstanding – basic		6,869,027		6,874,679		6,871,299		6,874,314
Weighted average shares outstanding – diluted		6,869,027		6,886,900		6,871,299		6,875,195
Per share data:
Basic from continuing operations	$	0.08	$	0.04	$	0.01	$	0.05
Diluted from continuing operations	$	0.08	$	0.04	$	0.01	$	0.05

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2020		2019		2020		2019
Net income from discontinued operations – basic and diluted	$	-	$	158,990	$	-	$	721,890
Weighted average shares outstanding – basic		6,869,027		6,874,679		6,871,299		6,874,314
Weighted average shares outstanding – diluted		6,869,027		6,886,900		6,871,299		6,875,195
Per share data:
Basic from discontinued operations	$	-	$	0.02	$	-	$	0.11
Diluted from discontinued operations	$	-	$	0.02	$	-	$	0.11

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2020		2019		2020		2019
Net income - basic and diluted	$	531,541	$	443,384	$	93,157	$	1,089,999
Weighted average shares outstanding – basic		6,869,027		6,874,679		6,871,299		6,874,314
Weighted average shares outstanding – diluted		6,869,027		6,886,900		6,871,299		6,875,195
Per share data:
Basic	$	0.08	$	0.06	$	0.01	$	0.16
Diluted	$	0.08	$	0.06	$	0.01	$	0.16

12.

Leases

On June 7, 2016, the Company entered into a lease agreement with Jericho Executive Center LLC for office space at 30 Jericho Executive Plaza in Jericho, New York which commenced on September 1, 2016 and runs through November 30, 2021. The Company’s monthly office rent payments under the lease are currently approximately $5,900 per month.

On May 1, 2019, the Company entered into a sublease agreement with Telecom Infrastructure Corp. (“Telecom”) for office space located at 122 East 42nd Street in New York, NY, pursuant to which Telecom was required to pay the Company $11,164 per month. The term of the sublease ran until April 26, 2023. On June 18, 2020, the Company entered into an agreement to terminate the sublease for this office space. Pursuant to the terms of the agreement, Telecom vacated the offices on June 30, 2020.

Lease Cancellation

On May 1, 2019, the Company entered into a lease agreement for office space located at 122 East 42nd Street in New York, NY and paid a $133,968 security deposit in the form of a letter of credit. The term of the lease ran until April 26, 2023. The Company’s monthly office rent payments under the lease were approximately $33,492 per month. On June 22, 2020, the Company entered into an agreement to terminate the lease for this office space. Pursuant to the terms of the agreement, the Company vacated the offices on June 30, 2020 and the Company agreed to forfeit its security deposit of $133,968.

PALTALK, INC.

(F/K/A PEERSTREAM, INC.)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

In accordance with ASC 842-20-40-1, the Company accounted for the cancellation of the lease by removing the right-of-use asset and the lease liability, with a profit recognized for the difference. The Company recorded a net gain on the office lease cancellation of $141,001 reflected in the condensed consolidated statements of income.

As of June 30, 2020, the Company had no long-term leases that were classified as a financing lease. As of June 30, 2020, the Company did not have additional operating and financing leases that have not yet commenced.

At June 30, 2020, the Company had operating lease liabilities of approximately $0.1 million and right of use assets of approximately $0.1 million, which are included in the condensed consolidated balance sheet.

Total rent expense for the six months ended June 30, 2020 was $160,700, of which $36,095 was sublease income, and $178,305 for the six months ended June 30, 2019. Rent expense is recorded in general and administrative expense on the condensed consolidated statements of income.

The following table summarizes the Company’s operating leases:

	Six Months Ended
	June 30,
	2020			2019
Cash paid for amounts included in the measurement of operating lease liabilities	$	76,828		$	48,692
Weighted average assumptions:
Remaining lease term		1.4			2.1
Discount rate		3.5	%		3.6	%

On June 30, 2020, future minimum payments under non-cancelable operating leases were as follows:

For the years ending December 31,	Amount
2020	$	45,203
2021		84,370
Total	$	129,573
Less: present value adjustment		(33,351	)
Present value of minimum lease payments	$	96,222

13.

Term debt

On April 13, 2020, to help ensure adequate liquidity in light of the uncertainties posed by the coronavirus pandemic, the Company applied for a $506,500 loan (the “Loan”) under the Small Business Administration (“SBA”) Paycheck Protection Program under the recently enacted CARES Act. On May 3, 2020, the Company entered into a promissory note (the “Note”) in favor of Citibank, N.A., as lender (the “Lender”).

The Note has a two-year term, matures on May 3, 2022, and bears interest at a stated rate of 1.0% per annum. Monthly principal and interest payments will commence in December 2020. The Company did not provide any collateral or guarantees for the Loan, nor did we pay any facility charge to obtain the Loan. The Note provides for customary events of default, including, among others, those relating to failure to make payment, bankruptcy, breaches of representations and material adverse effects. The Company may prepay the principal of the Loan at any time without incurring any prepayment charges.

The Loan may be partially or fully forgiven if the Company complies with the provisions of the CARES Act, including the use of Loan proceeds for payroll costs, rent, utilities and certain other expenses as defined in the CARES Act. Any forgiveness of the Loan will be subject to approval by the SBA and the Lender.

On June 30, 2020, future principal payments under the Note were as follows:

For the years ending December 31,	Amount
2020	$	28,139
2021		337,667
2022		140,694
Total term debt	$	506,500
Less: current portion of term debt		(253,250	)
Non-current portion of term debt	$	253,250

PALTALK, INC.

(F/K/A PEERSTREAM, INC.)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

14.

Commitments and Contingencies

Legal Proceedings

On December 16, 2016, a wholly owned subsidiary of the Company, Paltalk Holdings, Inc., filed a patent infringement lawsuit in Delaware against Riot Games, Inc. and Valve Corporation for infringement of U.S. Patent Nos. 5,822,523 and 6,226,686 with respect to their online games League of Legends and Defense of the Ancients 2. These two patents were previously asserted against, and then licensed to, Microsoft, Sony, and Activision. In 2018, Valve Corporation moved to transfer the litigation from Delaware to the Western District of Washington. Such motion was granted by the court.

Riot Games, Inc. has filed a total of four inter partes reviews at the Patent Trial and Appeal Board (“PTAB”) of the United States Patent and Trademark Office, two per patent held by Paltalk Holdings, Inc., seeking to have the Paltalk Holdings, Inc. patents declared invalid. On May 14, 2019, the PTAB rejected the validity of the patents. On September 27, 2019, the Company filed an appeal of the PTAB’s ruling, and on June 16, 2020, the PTAB affirmed its ruling, therefore deeming the patents invalid. At this time, the Company is evaluating its options regarding filing an appeal.

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 June 30, 2020.

15.

Sale of Secured Communications Assets

As previously announced, on February 24, 2020, the Company entered into an Asset Purchase Agreement, which was subsequently amended and restated on May 29, 2020 (the “Amended and Restated Agreement”) with SecureCo, LLC (the “Buyer”), pursuant to which the Company agreed to sell substantially all of the assets related to its secure communications business (the “Secured Communications Assets”) to the Buyer (the “Asset Sale”). The Secured Communications Assets include communication solutions and operations capabilities for secure messaging and data applications, and software and middleware for enterprise and government client targets.

On July 23, 2020, the Company completed the Asset Sale for a cash purchase price of $250,000, $150,000 of which was paid at closing and $100,000 of which is payable in four equal installments over the next fifteen months. The Amended and Restated Agreement also provides for a revenue sharing arrangement, pursuant to which the Company is entitled to receive quarterly royalty payments ranging from 5% to 10% of certain revenues received by the Buyer, with the aggregate amount of such royalty payments not to exceed $500,000.

16.

Subsequent Events

COVID-19

In December 2019, a strain of coronavirus was reported to have surfaced in Wuhan, China, and has since reached multiple other countries, including the United States, resulting in government-imposed quarantines, travel restrictions and other public health safety measures in affected countries. The various precautionary measures taken by many governmental authorities around the world in order to limit the spread of the coronavirus has had and could continue to have an adverse effect on the global markets and its economy, including on the availability and pricing of employees and resources, and other aspects of the global economy. Although we cannot predict the impact that the recent outbreak of coronavirus will have on our business or results of operations in 2020, to date, our core multimedia social applications have been able to support the increased demand we have experienced. As more fully described in Note 13 above, to help ensure adequate liquidity in light of the uncertainties posed by the coronavirus pandemic, the Company did receive a $506,500 Note under the SBA Paycheck Protection Program under the recently enacted CARES ACT. There can be no assurance that the amounts will be forgiven until the Lender makes its final determination.

Paltalk continues to serve as a form of safe and entertaining communication during this global pandemic and in order to help those affected in hardest hit countries will continue to offer some of its group video conferencing services free of charge.

Management has evaluated subsequent events or transactions occurring through the date the condensed consolidated financial statements were issued and determined that no other events or transactions are required to be disclosed herein.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to provide a reader of our financial statements with a narrative from the perspective of our management on our financial condition, results of operations, liquidity and certain other factors that may affect our future results. The following discussion and analysis should be read in conjunction with: (i) the accompanying unaudited condensed consolidated financial statements and notes thereto for the three and six months ended June 30, 2020 and 2019, (ii) the consolidated financial statements and notes thereto for the year ended December 31, 2019 included in our Annual Report on Form 10-K (the “Form 10-K”) filed with the Securities and Exchange Commission (the “SEC”) on March 24, 2020 and (iii) the discussion under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the Form 10-K. Aside from certain information as of December 31, 2019, all amounts herein are unaudited.

Forward-Looking Statements

In addition to historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. See “Forward-Looking Statements.” Our results and the timing of selected events may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those discussed under “Item 1A. Risk Factors” in Part II of this report and “Item 1A. Risk Factors” in the Form 10-K.

Overview

We are a leading communications software innovator that powers multimedia social applications. We operate a leading network of consumer applications that we believe create a unique social media enterprise where users can meet, see, chat, broadcast and message in real time in a secure environment with others in our network. Our consumer applications generate revenue principally from subscription fees and advertising arrangements.

We believe that the scale of our subscriber base presents a competitive advantage in the video social networking industry and provides growth opportunities to advance existing products with up-sell opportunities and build future brands with cross-sell offers.

We also believe that our proprietary consumer app technology platform can scalably support large communities of users in activities such as video, voice and text chat and provide robust user monetization tools. In October 2019, we commenced a strategy to make our video chat platform available to potential third-party partners with large user communities to provide retention-enhancing social and communication features while potentially providing additional commercial opportunities for those partners. We expect to participate in the commercial upside with such partners via revenue sharing arrangements that we plan to negotiate on a partner-specific basis.

Our continued growth depends on attracting new consumer application users through the introduction of new applications, features and partnerships and further penetration of our existing markets. Our principal growth strategy is to invest in the development of proprietary software, expand our sales and marketing efforts with respect to such software, and increase our consumer application user base through potential platform partnerships and new and existing advertising campaigns that we run through internet and mobile advertising networks, all while balancing the capital needs of the business.

Our strategy is to approach these opportunities in a measured way, being mindful of the Company’s resources and evaluating factors such as potential revenue, time to market and amount of capital needed to invest in the opportunity.

Recent Developments

Name Change

COVID-19

In December 2019, a strain of coronavirus, was reported to have surfaced in Wuhan, China, and has reached multiple other countries, resulting in government-imposed quarantines, travel restrictions and other public health safety measures in affected countries. The various precautionary measures taken by many governmental authorities around the world in order to limit the spread of the coronavirus has had and could continue to have an adverse effect on the global markets and its economy, including on the availability and pricing of employees and resources, and other aspects of the global economy. Although we cannot predict the impact that the recent outbreak of coronavirus will have on our business or results of operations in 2020, to date, our core multimedia social applications have been able to support the increased demand we have experienced. On April 13, 2020, to help ensure adequate liquidity in light of the uncertainties posed by the coronavirus pandemic, we applied for a $506,500 loan (the “Loan”) under the Small Business Administration (“SBA”) Paycheck Protection Program under the recently enacted Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”)., and on May 3, 2020, we entered into a promissory note (the “Note”) in favor of Citibank, N.A., as lender (the “Lender”). While management believes that at least some portion of the Note will be forgiven pursuant to its terms, there can be no assurance that any amount will be forgiven until the SBA and the Lender make their final determination.

Paltalk continues to serve as a form of safe and entertaining communication during this global pandemic and in order to help those affected in hardest hit countries will continue to offer some of our group video conferencing services free of charge.

Sale of Secured Communications Assets

As previously announced, on February 24, 2020, we entered into an Asset Purchase Agreement, which was subsequently amended and restated on May 29, 2020 (the “Amended and Restated Agreement”) with SecureCo, LLC (the “Buyer”), pursuant to which we agreed to sell substantially all of the assets related to its secure communications business (the “Secured Communications Assets”) to the Buyer (the “Asset Sale”). The Secured Communications Assets include communication solutions and operations capabilities for secure messaging and data applications, and software and middleware for enterprise and government client targets.

On July 23, 2020, we completed the Asset Sale for a cash purchase price of $250,000, $150,000 of which was paid at closing and $100,000 of which is payable in four equal installments over the next fifteen months. The Amended and Restated Agreement also provides for a revenue sharing arrangement, pursuant to which we are entitled to receive quarterly royalty payments ranging from 5% to 10% of certain revenues received by the Buyer, with the aggregate amount of such royalty payments not to exceed $500,000. We do not expect to continue to pursue secure communications products or technology implementation services as part of our overall business strategy.

Operational Highlights and Objectives

During the three and six months ended June 30, 2020, we executed key components of our objectives:

	●	reported net income for the three and six months ended June 30, 2020 of $0.5 million and $0.1 respectively, compared to net income of $0.4 million and $1.1 million for the three and six months ended June 30, 2019 by growing subscription revenue compared to the same period last year and by executing on our streamlined operating plan, which eliminated costs associated with our secure communications business headcount;

	●	achieved positive net cash flow, an improvement of $2.9 million when compared to the six months ended June 30, 2019, and positive cash flow from operations, an improvement of $3.8 million when compared to the six months ended June 30, 2019;

	●	increased active subscribers by 4.2% as compared to December 31, 2019, along with an increase in active subscribers of 2.0% compared to June 30, 2019;

	●	decreased our operating expenses through a streamlined plan of operations by $3.5 million, or 37.1%, compared to the six months ended June 30, 2019;

	●	in connection with the commercial launch of YouNow’s Props platform on our Camfrog application, which enabled us to distribute Props tokens to our end users for anticipated loyalty and retention benefits, the Company received 7.0 million Props tokens in May 2020 (3.0 million of which were received upon signing the agreement and 4.0 million of which were received upon the launch of YouNow’s Props tokens on Camfrog); and

	●	completed the sale of our secure communications business for an aggregate purchase price of $250 thousand, which provides for future revenue share potential of up to an additional $0.5 million, allowing the Company to participate in the upside of that business without losing focus on its core application business.

For the near term, our business objectives include:

●

implementing several enhancements to our live video chat applications, including the integration of Props token rewards and other features focused on new user acquisition, retention and monetization, which collectively are intended to increase usage and revenue opportunities;

	●	continuing to explore strategic opportunities, including, but not limited to, potential mergers or acquisitions of other 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; and

	●	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. We expect that the majority of our revenue will 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.

Subscription Revenue

Our video chat platforms generate revenue primarily through subscription fees. Our tiers of subscriptions provide users with unlimited video windows and levels of status within the community. Multiple subscription tiers are offered in different durations depending on the product from one-, six- and twelve- month terms, which continue to vary as we continue to test and optimize length and pricing. Longer-term plans (those with durations longer than one month) are generally available at discounted monthly rates. 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. We also hold occasional promotions that offer discounted subscriptions and virtual gifts.

We recognize revenue from monthly premium subscription services beginning in the month in which the subscriptions are originated. Revenues from multi-month subscriptions are recognized on a gross and straight-line basis over the length of the subscription period. The unearned portion of subscription revenue is presented as deferred revenue in the accompanying condensed consolidated balance sheets.

We also offer virtual gifts to our users. Users may purchase credits that can be redeemed for a host of virtual gifts such as a rose, a beer, or a car, among other items. Virtual gift revenue is recognized upon the users’ utilization of the virtual gift and included in subscription revenue. The unearned portion of virtual gifts revenue is presented as deferred revenue in the accompanying condensed consolidated balance sheets.

Advertising Revenue

We generate a portion of our revenue through advertisements on our video platforms. Advertising revenue is dependent upon the volume of advertising impressions viewed by active users as well as the advertising inventory we place on our products. We recognize advertising revenue as earned on a click-through, impression, registration or subscription basis. Measurements of impressions include when a user clicks on an advertisement (CPC basis), views an advertisement impression (CPM basis), or registers for an external website via an advertisement by clicking on or through our application (CPA basis).

Technology Service Revenue

Technology service revenue is generated under licensing, service and partnership agreements that we negotiate with third parties which includes development, integration, engineering, licensing or other services that we provide.

During 2019 and the first quarter of 2020, we received technology service revenue in connection with our technology services agreement (the “ProximaX Agreement”) with ProximaX Limited (“ProximaX”). Effective June 24, 2019, we entered into a termination agreement with ProximaX (the “Termination Agreement”), pursuant to which ProximaX was required to make certain payments to us on a monthly basis through the remainder of 2019. Since there is no assurance of collectability on the payments due under the Termination Agreement, revenue is being recognized as the payments are received. As described above, we recently sold our Secured Communications Assets. We do not anticipate generating any material technology service revenue in the future or continuing to pursue secure communications software solutions as part of our business strategy.

During the second quarter of 2020, the Company also recorded technology services revenue in connection with its agreement to serve as a launch partner with YouNow Inc. (“YouNow”) and to integrate YouNow’s props infrastructure (the “Props platform”) into its Camfrog and Paltalk applications (the “YouNow Agreement”). Pursuant to the terms of the YouNow Agreement, YouNow agreed to pay the Company, in exchange for the Company’s services, an aggregate of 10.5 million cryptographic props tokens (“Props tokens”) upon the achievement of certain milestones as follows: (i) 3.0 million Props tokens upon execution of the YouNow Agreement, (ii) 4.0 million Props tokens upon the integration of the Props platform in the Company’s Camfrog application and (iii) 3.5 million Props tokens due upon the integration of the Props platform in the Paltalk application. The upfront fee is recognized as revenue under the output method based on the direct measurements of the value of services transferred to date to the customer, relative to the remaining services under the YouNow Agreement. The milestones fees are recognized as revenue on the completion dates of integration services performed.

We expect that business development partnerships are likely to contain pricing and other custom terms based on the needs of the client, which may include compensation in the form of cash or cryptocurrency tokens or a mix of cash and cryptocurrency tokens.

Costs and Expenses

Cost of revenue

Cost of revenue consists primarily of compensation (including stock-based compensation) and other employee-related costs for personnel engaged in data center and customer care functions, credit card processing fees, hosting fees, and data center rent and bandwidth costs. Beginning in April 2018, cost of revenue also includes compensation and other employee-related costs for technical personnel and subcontracting costs relating to technology service revenue.

Sales and marketing expense

Sales and marketing expense consist primarily of advertising expenditures and compensation (including stock-based compensation) and other employee-related costs for personnel engaged in sales and sales support functions. Advertising and promotional spend includes online marketing, including fees paid to search engines, and offline marketing, which primarily consists of partner-related payments to those who direct traffic to our brands.

Product development expense

Product development expense, which relates to the development of technology of our applications, consists primarily of compensation (including stock-based compensation) and other employee-related costs that are not capitalized for personnel engaged in the design, testing and enhancement of service offerings as well as amortization of capitalized website development costs.

General and administrative expense

General and administrative expense consists primarily of compensation (including stock-based compensation) and other employee-related costs for personnel engaged in executive management, finance, legal, tax and human resources and facilities costs and fees for other professional services. General and administrative expense also includes depreciation of property and equipment and amortization of intangible assets.

Key Metrics

Our management relies on certain non-GAAP and/or unaudited performance indicators to manage and evaluate our business. The key performance indicators set forth below help us evaluate growth trends, establish budgets, measure the effectiveness of our advertising and marketing efforts and assess operational efficiencies. We also discuss net cash provided by (used in) operating activities under the ‟Results of Operations” and ‟Liquidity and Capital Resources” sections below. Active subscribers, subscription bookings and Adjusted EBITDA are discussed below.

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2020			2019			2020			2019
Active subscribers (as of period end)		108,200			106,100			108,200			106,100
Subscription bookings	$	3,415,548		$	3,037,802		$	6,000,812		$	6,063,051
Net cash provided by (used in) operating activities	$	405,903		$	(586,966	)	$	422,795		$	(3,373,991	)
Net income	$	531,541		$	443,384		$	93,157		$	1,089,999
Adjusted EBITDA	$	593,793		$	1,019,611		$	472,341		$	1,519,601
Adjusted EBITDA as percentage of total revenues		17.6	%		20.9	%		7.7	%		15.6	%

Active Subscribers

Active subscribers means users of our consumer applications that have prepaid a fee, redeemed credits or received an upgrade from another user as a gift for current unlocked application features such as enhanced voice and video access, elevated status in the community or unrestricted communication on our applications and whose subscription period has not yet expired. The metrics for active subscribers are based on internally-derived metrics across all platforms through which our applications are accessed. We assess the performance of our consumer applications by measuring active subscribers because we believe that this metric is the most reliable way to understand user engagement on our platform and estimate the future operational performance of our applications. We also believe that measuring active subscribers helps management estimate future subscription revenue. Because active subscribers generate the majority of our subscription revenue, as the number of active subscribers to our consumer applications increases, the amount of subscription revenue generated from our consumer applications also increases. Active subscribers is distinguished from active users, which represents the total number of free and paid users across all platforms during a certain period who access our various applications. We believe that active users are important to our operations because advertising revenue is largely dependent upon the volume of advertising impressions viewed by active users.

Subscription Bookings

Subscription bookings is a financial measure representing the aggregate dollar value of subscription fees and virtual gifts purchases received during the period. We calculate subscription bookings as subscription revenue recognized during the period plus the change in deferred subscription revenue recognized during the period. We record subscription revenue from subscription fees as deferred subscription revenue and then recognize that revenue ratably over the length of the subscription term or ratably over usage for virtual gifts. Our management uses subscription bookings internally in analyzing our financial results to assess operational performance and to assess the effectiveness of, and plan future, user acquisition campaigns. We believe that this financial measure is useful in evaluating the performance of our consumer applications because we believe, as compared to subscription revenue, it is a better indicator of the subscription activity in a given period. We believe that both management and investors benefit from referring to subscription bookings in assessing our performance and when planning, forecasting and analyzing future periods.

While the factors that affect subscription bookings and subscription revenue are generally the same, certain factors may affect subscription bookings more or less than such factors affect subscription revenue in any period. While we believe that subscription bookings is useful in evaluating our business, it should be considered as supplemental in nature and it is not meant to be a substitute for subscription revenue recognized in accordance with GAAP.

Adjusted EBITDA

Adjusted EBITDA is a non-GAAP financial measure. Adjusted EBITDA is defined as net income adjusted to exclude net loss from discontinued operations, interest expense (income), net, other expense (income), gain on the sale of dating applications, income tax expense from continuing operations, income tax benefit from discontinued operations, gain on office lease termination, depreciation and amortization expense and stock-based compensation expense.

We present Adjusted EBITDA because it is a key measure used by our management and Board of Directors to understand and evaluate our core operating performance and trends, to develop short- and long-term operational plans and to allocate resources to expand our business. In particular, the exclusion of certain expenses in calculating Adjusted EBITDA can provide a useful measure for period-to-period comparisons of the cash operating income generated by our business. We believe that Adjusted EBITDA is useful to investors and others to understand and evaluate our operating results, and it allows for a more meaningful comparison between our performance and that of competitors.

Our use of Adjusted EBITDA has limitations as an analytical tool, and you should not consider this performance measure in isolation from or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:

●

Adjusted EBITDA does not reflect cash capital expenditures for assets underlying depreciation and amortization expense that may need to be replaced or for new capital expenditures;

●

Adjusted EBITDA does not reflect our working capital requirements;

●

Adjusted EBITDA does not consider the potentially dilutive impact of stock-based compensation;

●

Adjusted EBITDA does not consider the gain from the office lease cancellation;

●

Adjusted EBITDA does not reflect the gain on the sale of our dating applications or our loss or income tax expense from discontinued operations; and

●

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

Limitations of Adjusted EBITDA

Because of these limitations, you should consider Adjusted EBITDA alongside other financial performance measures, including various cash flow metrics, net income and our other GAAP results. The following table presents a reconciliation of net income, the most directly comparable financial measure calculated and presented in accordance with GAAP, to Adjusted EBITDA for each of the periods indicated:

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2020			2019			2020			2019
Reconciliation of Net income to Adjusted EBITDA:
Net income	$	531,541		$	443,384		$	93,157		$	1,089,999
Interest expense (income), net		1,210			(24,837	)		(10,977	)		(54,794	)
Other expense (income), net		(4,589	)		-			79,880			-
Net loss from discontinued operations		-			-			-			104,880
Gain on sale of dating applications		-			-			-			(826,770	)
Income tax benefit from discontinued operations		-			(158,990	)		-			-
Income tax expense from continuing operations		2,500			163,490			5,000			4,500
Gain on office lease termination		(141,001	)		-			(141,001	)		-
Depreciation and amortization expense		146,949			152,903			299,893			305,600
Stock-based compensation expense		57,183			443,661			146,389			896,186
Adjusted EBITDA	$	593,793		$	1,019,611		$	472,341		$	1,519,601

Results of Operations

In January 2019, we sold substantially all of the assets related to our dating service business under the domain names FirstMet, 50more and The Grade, which we collectively refer to as the dating services business. As a result, during the first quarter of 2019, we began to separately report the results of the dating services business as a discontinued operation in our condensed consolidated statements of income and present the related assets and liabilities as held for sale in our condensed consolidated balance sheets. These changes have been applied for all periods presented. Unless otherwise noted, amounts and percentages for all periods discussed below reflect the results of operations and financial condition from our continuing operations. Refer to Note 3 of the notes to our condensed consolidated financial statements for additional information on discontinued operations.

The following table sets forth condensed consolidated statements of income data for each of the periods indicated as a percentage of total revenues:

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2020			2019			2020			2019
Total revenue		100.0	%		100.0	%		100.0	%		100.0	%
Costs and expenses:
Cost of revenue		20.3	%		18.3	%		21.4	%		18.9	%
Sales and marketing expense		6.5	%		4.7	%		6.8	%		6.2	%
Product development expense		37.2	%		35.1	%		41.1	%		35.7	%
General and administrative expense		20.3	%		33.1	%		28.0	%		35.8	%
Total costs and expenses		84.3	%		91.3	%		97.3	%		96.7	%
Income from continuing operations		15.7	%		8.7	%		2.7	%		3.3	%
Other income (expense), net		0.1	%		-	%		(1.3	)%		-	%
Interest income (expense), net		(0.0	)%		0.5	%		0.2	%		0.6	%
Income from continuing operations before provision for income taxes		15.8	%		9.2	%		1.6	%		3.9	%
Income tax expense		(0.1	)%		(3.4	)%		(0.1	)%		(0.0	)%
Net income from continuing operations		15.7	%		5.8	%		1.5	%		3.9	%
Gain on sale from discontinued operations		-	%		-	%		-	%		8.5	%
Loss from discontinued operations		-	%		-	%		-	%		(1.1	)%
Income tax benefit on discontinued operations		-	%		3.3	%		-	%		-	%
Net income from discontinued operations		-	%		3.3	%		-	%		-	%
Net income		15.7	%		9.1	%		1.5	%		11.3	%

Three Months Ended June 30, 2020 Compared to Three Months Ended June 30, 2019

Revenue

Total revenues decreased to $3,380,475 for the three months ended June 30, 2020 from $4,872,874 for the three months ended June 30, 2019. The decrease was mainly driven by the termination of the ProximaX Agreement, offset by technology service revenue of $112,000 generated by the YouNow Agreement, along with a decrease of $53,013 in advertising revenue across all products, offset by an increase of $160,719 in subscription revenue supported by a 2.0% increase in active subscribers.

The following table sets forth our subscription revenue, advertising revenue, technology service revenue and total revenues for the three months ended June 30, 2020 and 2019, the increase or decrease between those periods, the percentage increase or decrease between those periods and the percentage of total revenues that each represented for those periods:

											% Revenue
	Three Months Ended				$			%			Three Months Ended
	June 30,				Increase			Increase			June 30,
	2020		2019		(Decrease)			(Decrease)			2020			2019
Subscription revenue	$	3,210,619	$	3,049,900	$	160,719			5.3	%		95.0	%		62.6	%
Advertising revenue		57,856		110,869		(53,013	)		(47.8	)%		1.7	%		2.3	%
Technology service revenue		112,000		1,712,105		(1,600,105	)		(93.5	)%		3.3	%		35.1	%
Total revenues	$	3,380,475	$	4,872,874	$	(1,492,399	)		(30.6	)%		100.0	%		100.0	%

Subscription Revenue – Our subscription revenue for the three months ended June 30, 2020 increased by $160,719, or 5.3%, as compared to the three months ended June 30, 2019. The increase in subscription revenue was mainly driven by increased subscriptions across all products, corresponding to an increase in active subscribers of approximately 2.0%.

Advertising Revenue – Our advertising revenue for the three months ended June 30, 2020 decreased by $53,013, or 47.8%, as compared to the three months ended June 30, 2019. The decrease in advertising revenue was primarily due to a decline in the volume of advertising impressions related to changes in third party advertising partners.

Technology Service Revenue – Our technology service revenue decreased by $1,600,105, or 93.5%, as compared to the three months ended June 30, 2019. The decrease in technology service revenue was mainly driven by the termination of the ProximaX Agreement, offset by technology service revenue of $112,000 generated by the YouNow Agreement.

Costs and Expenses

Total costs and expenses for the three months ended June 30, 2020 reflect a decrease of $1,600,014, or 36.0%, as compared to the three months ended June 30, 2019. The following table presents our costs and expenses for the three months ended June 30, 2020 and 2019, the decrease between those periods, the percentage decrease between those periods and the percentage of total revenues that each represented for those periods:

											% Revenue
	Three Months Ended										Three Months Ended
	June 30,				$			%			June 30,
	2020		2019		Decrease			Decrease			2020			2019
Cost of revenue	$	685,430	$	892,470	$	(207,040	)		(23.2	)%		19.6	%		18.3	%
Sales and marketing expense		221,416		230,996		(9,580	)		(4.1	)%		6.3	%		4.7	%
Product development expense		1,255,884		1,711,974		(456,090	)		(26.6	)%		36.0	%		35.1	%
General and administrative expense		687,083		1,614,387		(927,304	)		(57.4	)%		19.7	%		33.1	%
Total costs and expenses	$	2,849,813	$	4,449,827	$	(1,600,014	)		(36.0	)%		81.6	%		91.3	%

Cost of revenue – Our cost of revenue for the three months ended June 30, 2020 decreased by $207,040, or 23.2%, as compared to the three months ended June 30, 2019. The decrease for the three months ended June 30, 2020 was primarily driven by a decrease of approximately $163,400 in expenses related to the terminated ProximaX Agreement. Additionally, there was a decrease from fraud, hosting and content delivery services reductions for the three months ended June 30, 2020.

Sales and marketing expense – Our sales and marketing expense for the three months ended June 30, 2020 decreased by $9,580, or 4.1%, as compared to the three months ended June 30, 2019. The decrease in sales and marketing expense for the three months ended June 30, 2020 was primarily due to a decrease in overall marketing expenditures across all products.

Product development expense – Our product development expense for the three months ended June 30, 2020 decreased by $456,090, or 26.6%, as compared to the three months ended June 30, 2019. The decrease was primarily due to a decrease of approximately $408,500 resulting from reduced headcount in the product and engineering teams.

General and administrative expense – Our general and administrative expense for the three months ended June 30, 2020 decreased by $927,304, or 57.4%, as compared to the three months ended June 30, 2019. The decrease in general and administrative expense for the three months ended June 30, 2020 was primarily due to headcount reductions resulting in approximately $529,300 of reduced salary and related expenses. In addition, the decrease was in part due to reduced legal fees of approximately $87,512 and a gain of approximately $141,000 resulting from an office lease termination.

Non-Operating Income

The following table presents the components of non-operating income for the three months ended June 30, 2020 and the three months ended June 30, 2019, the increase or decrease between those periods, the percentage increase or decrease between those periods and the percentage of total revenues that each represented for those periods:

												% Revenue
	Three Months Ended					$			%			Three Months Ended
	June 30,					Increase			Increase			June 30,
	2020			2019		(Decrease)			(Decrease)			2020			2019
Interest income (expense), net	$	(1,210	)	$	24,837	$	(26,047	)		(104.9	)%		(0.0	)%		0.5	%
Other income		4,589			-		4,589			100.0	%		0.1	%		-	%
Income from discontinued operations		-			158,990		(158,990	)		(100.0	)%		-	%		3.3	%
Total non-operating income	$	3,379		$	183,827	$	(180,448	)		(98.2	)%		0.1	%		3.8	%

Non-operating income for the three months ended June 30, 2020 was $3,379, a net decrease of $180,448, as compared to non-operating income of $183,827 for the three months ended June 30, 2019. The decrease in non-operating income was driven by the loss of income from the dating services business that we sold in January 2019.

Income Taxes

Our 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. For the three months ended June 30, 2020, the Company recorded an income tax provision from continuing operations of $2,500 consisting primarily of state and local taxes. For the three months ended June 30, 2019, the Company recorded an income tax provision from continuing operations of $163,490. The Company recorded an income tax provision for state and local taxes and reversed the income tax benefit recorded during the three months ended March 31, 2019 as the intra-period allocation guidance no longer applied as the Company reported income from both continuing and discontinued operations.

As of June 30, 2020, our conclusion regarding the realizability of our US deferred tax assets did not change and we have recorded a full valuation allowance against them.

Six Months Ended June 30, 2020 Compared to Six Months Ended June 30, 2019

Revenue

Revenue decreased to $6,101,217 for the six months ended June 30, 2020 from $9,746,049 for the six months ended June 30, 2019. The decrease was driven by a decline of $3,333,483 in technology service revenue as a result of the termination of the ProximaX Agreement, offset by $112,000 of revenue generated from the YouNow Agreement, a decline in subscription revenue of $193,513 primarily as a result of lower virtual goods transaction volume, as well as a decrease of $117,836 in advertising revenue across all products.

The following table sets forth our subscription revenue, advertising revenue, technology service revenue and total revenues for the six months ended June 30, 2020 and the six months ended June 30, 2019, the decrease between those periods, the percentage decrease between those periods and the percentage of total revenues that each represented for those periods:

											% Revenue
	Six Months Ended										Six Months Ended
	June 30,				$			%			June 30,
	2020		2019		Decrease			Decrease			2020			2019
Subscription revenue	$	5,860,742	$	6,054,255	$	(193,513	)		(3.2	)%		96.0	%		62.1	%
Advertising revenue		113,523		231,359		(117,836	)		(50.9	)%		1.9	%		2.4	%
Technology service revenue		126,952		3,460,435		(3,333,483	)		(96.3	)%		2.1	%		35.5	%
Total revenues	$	6,101,217	$	9,746,049	$	(3,644,832	)		(37.4	)%		100.0	%		100.0	%

Subscription Revenue – Our subscription revenue for the six months ended June 30, 2020 decreased by $193,513, or 3.2%, as compared to the six months ended June 30, 2019. The decrease in subscription revenue was mainly driven by lower virtual gift transaction volume for both Paltalk and Camfrog products, corresponding to lower monthly active usage as compared to the six months ended June 30, 2019.

Advertising Revenue – Our advertising revenue for the six months ended June 30, 2020 decreased by $117,836, or 50.9%, as compared to the six months ended June 30, 2019. The decrease in advertising revenue primarily resulted from a decrease in the marketing budget. We also believe a significant portion of the decrease was related to challenges in the digital advertising industry due to a greater emphasis on fraud control, resulting in lower demand and pricing.

Technology Service Revenue – Our technology service revenue decreased by $3,333,483, or 96.3%, as compared to the six months ended June 30, 2019. The decrease in technology service revenue was mainly driven by the termination of the ProximaX Agreement, offset by technology service revenue of $112,000 generated by the YouNow Agreement.

Costs and Expenses

Total costs and expenses for the six months ended June 30, 2020 reflect a decrease in costs and expenses of $3,494,077, or 37.1%, as compared to the six months ended June 30, 2019. The following table presents our costs and expenses for the six months ended June 30, 2020 and 2019, the decrease between those periods, the percentage decrease between those periods and the percentage of total revenues that each represented for those periods:

											% Revenue
	Six Months Ended										Six Months Ended
	June 30,				$			%			June 30,
	2020		2019		Decrease			Decrease			2020			2019
Cost of revenue	$	1,308,154	$	1,844,689	$	(536,535	)		(29.1	)%		21.1	%		18.9	%
Sales and marketing expense		413,086		608,147		(195,061	)		(32.1	)%		6.6	%		6.2	%
Product development expense		2,506,580		3,483,539		(976,959	)		(28.0	)%		40.3	%		35.7	%
General and administrative expense		1,706,337		3,491,859		(1,785,522	)		(51.1	)%		27.5	%		35.8	%
Total costs and expenses	$	5,934,157	$	9,428,234	$	(3,494,077	)		(37.1	)%		95.5	%		96.7	%

Cost of revenue - Our cost of revenue for the six months ended June 30, 2020 decreased by $536,535, or 29.1%, as compared to the six months ended June 30, 2019. The decrease for the six months ended June 30, 2020 was primarily driven by a decrease of approximately $354,700 in expenses related to the terminated ProximaX Agreement. Additionally, there was a decrease in expenses resulting from the reduction of fraud, hosting and content delivery services in the six months ended June 30, 2020.

Sales and marketing expense - Our sales and marketing expense for the six months ended June 30, 2020 decreased by $195,061, or 32.1%, as compared to the six months ended June 30, 2019. The decrease in sales and marketing expense for the six months ended June 30, 2020 was primarily due to a decrease in marketing expenditures of approximately $172,100 related to our video applications.

Product development expense - Our product development expense for the six months ended June 30, 2020 decreased by $976,959, or 28.0%, as compared to the six months ended June 30, 2019. The decrease was primarily due to a decrease in compensation resulting from reduced headcount in the product and engineering teams.

General and administrative expense - Our general and administrative expense for the six months ended June 30, 2020 decreased by $1,785,522, or 51.1%, as compared to the six months ended June 30, 2019. The decrease in general and administrative expense was primarily due to headcount reductions resulting in approximately $1,007,900 of reduced salary and related expenses. In addition, the decrease was in part due to reduced legal fees of approximately $203,500 and a gain of approximately $141,000 resulting from an office lease termination.

Non-Operating Income (Loss)

The following table presents the components of non-operating income (loss) for the six months ended June 30, 2020 and the six months ended June 30, 2019, the decrease between those periods, the percentage decrease between those periods and the percentage of total revenues that each represented for those periods:

												% Revenue
	Six Months Ended											Six Months Ended
	June 30,					$			%			June 30,
	2020			2019		Decrease			Decrease			2020			2019
Interest income, net	$	10,977		$	54,794	$	(43,817	)		(80.0	)%		0.2	%		0.6	%
Other expense, net		(79,880	)		-		(79,880	)		(100.0	)%		(1.3	)%		-	%
Income from discontinued operations		-			721,890		(721,890	)		(100.0	)%		-	%		7.4	%
Total non-operating income (loss)	$	(68,903	)	$	776,684	$	(845,587	)		(109.6	)%		(1.1	)%		8.0	%

Non-operating income for the six months ended June 30, 2020 decreased by $845,587, or 109.6%, as compared to the six months ended June 30, 2019, primarily due to the sale of the assets related to our dating services business. In addition, other expenses increased by $79,880 primarily due to a $23,838 realized loss from the sale of digital tokens and a $56,042 current asset write-off.

Income Taxes

Our 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. For the six months ended June 30, 2020, the Company recorded an income tax provision from continuing operations of $5,000 consisting primarily of state and local taxes. For the six-months ended June 30, 2019, the Company recorded an income tax provision of $4,500. The Company recorded an income tax provision for state and local taxes and reversed the income tax benefit recorded during the three months ended March 31, 2019 as the intra-period allocation guidance no longer applied as the Company reported income from both continuing and discontinued operations.

As of June 30, 2020, our conclusion regarding the realizability of our US deferred tax assets did not change and we have recorded a full valuation allowance against them.

Liquidity and Capital Resources

	Six Months Ended
	June 30,
	2020		2019
Condensed Consolidated Statements of Cash Flows Data:
Net cash provided by (used in) operating activities	$	422,795	$	(3,373,991	)
Net cash provided by investing activities		31,356		1,460,603
Net cash provided by financing activities		497,656		-
Net increase (decrease) in cash and cash equivalents	$	951,807	$	(1,913,388	)

Currently, our primary source of liquidity is cash on hand and cash flows from continuing operations, and we believe that our cash balance and our expected cash flow from operations will be sufficient to meet all of our financial obligations for the twelve months from the date of this report. As of June 30, 2020, we had $4,378,865 of cash and cash equivalents.

Our primary use of working capital is related to product development resources in order to maintain and create new services and features in applications for our clients and users. In particular, a significant portion of our working capital has been allocated to the improvement of our products. In the future, we may also seek to grow our business by expending our capital resources to fund strategic investments and partnership opportunities.

On April 13, 2020, to help ensure adequate liquidity in light of the uncertainties posed by the coronavirus pandemic, we applied for the Loan, and on May 3, 2020, we entered into the Note in favor of the Lender in the amount of approximately $0.5 million.

The Note has a two-year term, matures on May 3, 2022, and bears interest at a stated rate of 1.0% per annum. Monthly principal and interest payments will commence in December 2020. We did not provide any collateral or guarantees for the Loan, nor did we pay any facility charge to obtain the Loan. The Note provides for customary events of default, including, among others, those relating to failure to make payment, bankruptcy, breaches of representations and material adverse effects. We may prepay the principal of the Loan at any time without incurring any prepayment charges.

The Loan may be partially or fully forgiven if we comply with the provisions of the CARES Act, including the use of Loan proceeds for payroll costs, rent, utilities and certain other expenses as defined in the CARES Act. Any forgiveness of the Loan will be subject to approval by the SBA and the Lender.

We also recently completed the sale of the Secured Communications Assets for a cash purchase price of $250,000, $150,000 of which was paid at closing and $100,000 of which is payable in four equal installments over the next fifteen months. The Amended and Restated Agreement also provides for a revenue sharing arrangement, pursuant to which we are entitled to receive quarterly royalty payments ranging from 5% to 10% of certain revenues received by the Buyer, with the aggregate amount of such royalty payments not to exceed $500,000.

In the future, it is possible that we will need additional capital to fund our operations, particularly growth initiatives, which we expect we would raise through a combination of equity offerings, debt financings, other third-party funding and other collaborations and strategic alliances. We may also attempt to raise capital through dispositions of our assets, such as our sale of the dating services business in January 2019 and the sale of the Secured Communications Assets in July 2020.

Operating Activities

Net cash provided by operating activities was $422,795 for the six months ended June 30, 2020, as compared to net cash used in operating activities of $3,373,991 for the six months ended June 30, 2019. The increase in net cash provided by operating activities of $3,796,786 was as a direct result of our streamlined plan of operations to reduce expenses. Operating expenses were reduced by $3.6 million, or 37.7%, compared to the six months ended June 30, 2019.

Investing Activities

Net cash provided by investing activities was $31,356 for the six months ended June 30, 2020, as compared to net cash provided by investing activities of $1,460,603 for the six months ended June 30, 2019. The decrease in net cash provided by investing activities for the six months ended June 30, 2020 was primarily due to the absence of proceeds from the sale of the dating services business offset by the proceeds received from the sale of digital tokens.

Financing Activities

There was net cash of $497,656 provided by financing activities for the six months ended June 30, 2020 as compared to no net cash used in financing activities for the six months ended June 30, 2019. The increase in net cash provided by financing activities for the six months ended June 30, 2020 was primarily from the Note proceeds received in order to help ensure adequate liquidity in light of the uncertainties posed by the coronavirus pandemic. This increase was offset by the repurchase of common stock pursuant to our repurchase plan.

Contractual Obligations and Commitments

There have been no other material changes to our contractual obligations and commitments disclosed in the contractual obligations and commitments section of Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Form 10-K.

Off-Balance Sheet Arrangements

As of June 30, 2020, we did not have any off-balance sheet arrangements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

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, our chief executive officer 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 June 30, 2020, for the reasons set forth below, our management concluded that our disclosure controls and procedures were not 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.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. In its assessment of the effectiveness of internal control our financial reporting as of June 30, 2020, the Company determined that the following item constituted a material weakness:

●

The Company does not have adequate controls related to changes in management within the technology that support the Company’s financial reporting function.

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 first quarter of 2020, related to general information technology controls in the area of change management in order to remediate the material weakness identified above. We will continue to test these controls to ensure that they appropriately address and remediate the material weakness identified above.

There have been no other 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 quarterly period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II: OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

On November 2, 2017, Riot Games, Inc. filed a total of four petitions for inter partes review with the United States Patent and Trademark Office, two per patent held by Paltalk Holdings, Inc., seeking to have the Paltalk Holdings, Inc. patents declared invalid. On May 15, 2018, inter partes review was instituted, and on February 13, 2019, the Patent Trial and Appeal Board (the “PTAB”) held a hearing on the matter. On May 14, 2019 the PTAB rejected the validity of the patents. On September 27, 2019, the Company filed an appeal of the PTAB’s ruling, and on June 16, 2020, the PTAB affirmed its ruling, therefore deeming the patents invalid. At this time, the Company is evaluating its options regarding filing an appeal.

To our knowledge, other than as described above, there are no material pending legal proceedings to which we are a party or of which any of our property is the subject.

ITEM 1A. RISK FACTORS

Except as follows, there were no material changes to the Risk Factors disclosed in “Item 1A. Risk Factors” in the Form 10-K. For more information concerning our risk factors, please see “Item 1A. Risk Factors” in the Form 10-K.

The recent coronavirus outbreak may adversely affect our revenues, results of operations and financial condition.

In December 2019, a strain of coronavirus was reported to have surfaced in Wuhan, China, and has reached multiple other countries, including the United States, resulting in government-imposed quarantines, travel restrictions and other public health safety measures in the United States and other affected countries. The various precautionary measures taken by many governmental authorities around the world in order to limit the spread of the coronavirus have had and could continue to have an adverse effect on the global markets and its economy, including on the availability and pricing of employees and resources, and other aspects of the global economy. Therefore, the coronavirus could disrupt and cause delays in our software, disrupt the marketplace in which we operate, slow down the overall economy, curtail consumer spending, make it hard to adequately staff our operations or enter into agreements with independent contractors and have a material adverse effect on our operations. In addition, disruptions in the operations of the third parties with whom we do business have caused and could in the future cause such third parties to fail to perform under their respective contracts or commitments with us. For instance, we were party to a sublease agreement with Telecom for office space located at 122 East 42nd Street in New York, NY, pursuant to which Telecom was required to pay us $11,164 per month. Due to the coronavirus outbreak, Telecom was unable to make its monthly payments under the sublease agreement, and as a result, on June 18, 2020, we entered into an agreement with Telecom to terminate the sublease agreement. Under the terms of the agreement, Telecom vacated the offices on June 30, 2020.

The extent to which the coronavirus impacts our results will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the coronavirus and the actions to contain the coronavirus or treat its impact, among others.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Unregistered Sale of Equity Securities

There were no sales of unregistered securities during the quarter ended June 30, 2020 that were not previously reported on a Current Report on Form 8-K.

Issuer Repurchases of Common Stock

The following table details our repurchases of common stock during the three months ended June 30, 2020:

Period	Total Number of Shares Purchased (1)		Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (in millions)
April 1, 2020 – April 29, 2020		1,450	$	1.11		—	$	0.49
Total		1,450	$	1.11		—		0.49

(1)	On April 29, 2019, we implemented a repurchase plan to repurchase up to $500 thousand of our common stock for cash. The repurchase plan expired on April 29, 2020.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

None.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

(a) Exhibits required by Item 601 of Regulation S-K.

Exhibit Number		Description
2.1#		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, 2019 by the Company with the SEC).
2.2#*		Amended and Restated Asset Purchase Agreement, dated as of May 29, 2020, by and between Paltalk, Inc. and SecureCo, LLC.
3.1		Certificate of Incorporation, dated July 19, 2005 (incorporated by reference to Exhibit 3.1 to the Registration Statement on Form S-1 (File No. 333-172202) of the Company filed on February 11, 2011 by the Company with the SEC).
3.2		Certificate of Amendment of Certificate of Incorporation, dated November 20, 2007 (incorporated by reference to Exhibit 3.2 to the Registration Statement on Form S-1 (File No. 333-172202) of the Company filed on February 11, 2011 by the Company with the SEC).
3.3		Certificate of Amendment to Certificate of Incorporation, dated March 8, 2016 (incorporated by reference to Exhibit 3.3 to the Annual Report on Form 10-K filed on March 14, 2016 by the Company with the SEC).
3.4		Certificate of Amendment to Certificate of Incorporation, dated May 19, 2016 (incorporated by reference to Exhibit 3.4 to the Quarterly Report on Form 10-Q of the Company filed on August 11, 2016 by the Company with the SEC).
3.5		Certificate of Amendment to Certificate of Incorporation, dated January 5, 2019 (incorporated by reference to Exhibit 3.5 to the Annual Report on Form 10-K filed on March 28, 2019 by the Company with the SEC).
3.6		Certificate of Amendment to Certificate of Incorporation, effective March 12, 2019 (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K of the Company filed on March 13, 2019 by the Company with the SEC).
3.7		Certificate of Amendment to Certificate of Incorporation, dated May 25, 2019 (incorporated by reference to Exhibit 3.6 to the Quarterly Report on Form 10-Q of the Company filed on August 8, 2019 by the company with the SEC).
3.8		Certificate of Amendment to the Certificate of Incorporation, effective May 15, 2020 (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K of the Company filed on May 15, 2020 by the Company with the SEC).
3.9		Amended and Restated By-Laws of Paltalk, Inc., as amended April 19, 2012 (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K (File No. 000-52176) of the Company filed April 25, 2012 by the Company with the SEC).
3.10		Amendment No. 1 to the Amended and Restated By-Laws of Paltalk, Inc. (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K of the Company filed September 8, 2017 by the Company with the SEC).
3.11		Amendment No. 2 to the Amended and Restated By-Laws of Paltalk, Inc. (incorporated by reference to Exhibit 3.2 to the Current Report on Form 8-K of the Company filed on March 13, 2018 by the Company with the SEC).
3.12		Amendment No. 3 to the Amended and Restated By-Laws of Paltalk, Inc. (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K of the Company filed on March 25, 2020 by the Company with the SEC).
3.13		Amendment No. 4 to the Amended and Restated By-Laws of Paltalk, Inc. (incorporated by reference to Exhibit 3.2 to the Current Report on Form 8-K of the Company filed on May 15, 2020 by the Company with the SEC).
4.1		Specimen Stock Certificate of Paltalk, Inc. (incorporated by reference to Exhibit 4.2 to Amendment No. 7 to the Registration Statement on Form S-1 (File No. 333-226003) of the Company filed on November 27, 2018 by the Company with the SEC).
10.1		Paycheck Protection Program Loan Note, by and between the Company and Citibank, N.A., dated as of May 3, 2020 (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q of the Company filed on May 7, 2020 by the Company with the SEC).
31.1*		Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*		Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1**		Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101*		The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, formatted in XBRL (eXtensible Business Reporting Language), (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statement of Changes in Stockholders’ Equity, (iv) Condensed Consolidated Statements of Cash Flows and (v) Notes to Condensed Consolidated Financial Statements.

#	Schedules and exhibits have been omitted pursuant to Item 601(b)(2) of Regulation S-K. Paltalk, Inc. hereby undertakes to furnish supplemental copies of any of the omitted schedules and exhibits upon request by the Securities and Exchange Commission.

*	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 Quarterly Report on Form 10-Q, irrespective of any general incorporation language contained in such filing.

SIGNATURES

Pursuant to the requirements 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.

	Paltalk, Inc.

Date: August 6, 2020	By:	/s/ Jason Katz
		Jason Katz
		Chief Executive Officer
		(Principal Executive Officer)

	Paltalk, Inc.

Date: August 6, 2020	By:	/s/ Kara Jenny
		Kara Jenny
		Chief Financial Officer
		(Principal Financial and Accounting Officer)

Exhibit 2.2

AMENDED AND RESTATED

ASSET PURCHASE AGREEMENT

DATED AS OF MAY 29, 2020

BY AND BETWEEN

PALTALK, INC. f/k/a PEERSTREAM, INC.

AND

SECURECO, LLC

AMENDED AND RESTATED

ASSET PURCHASE AGREEMENT

This AMENDED AND RESTATED ASSET PURCHASE AGREEMENT (this “Agreement”), dated as of May 29, 2020, by and between SECURECO, LLC, a Delaware limited liability company (the “Purchaser”), and PALTALK, INC. f/k/a PEERSTREAM, INC., a New York corporation (the “Seller”).

WHEREAS, the Seller, in addition to its multimedia social apps business (the “Continuing Business”), has also developed certain communication solutions and operations capabilities with respect to the development and commercialization of secure messaging and data applications, software and middleware for enterprise and government client targets (the “Business”);

WHEREAS, the Seller and the Purchaser are parties to that certain Asset Purchase Agreement dated as of February 24, 2020, pursuant to which the Seller agreed to sell to the Purchaser, and the Purchaser agreed to purchase from the Seller, substantially all of the assets, properties and rights owned, used or held by Seller and related to or used in the Business (except for the Excluded Assets) upon the terms and conditions therein (the “Original Agreement”);

WHEREAS, in accordance with Section 10.09 (Entire Agreement; Amendment; Waiver) of the Original Agreement, the Seller and the Purchaser wish to effect certain changes to the Original Agreement by amending and restating the Original Agreement and replacing it in its entirety with this Agreement.

NOW, THEREFORE, in consideration of the mutual agreements contained herein, intending to be legally bound hereby, the parties hereto agree as follows:

ARTICLE I

CERTAIN DEFINITIONS

The terms defined in Appendix I attached hereto, whenever used in this Agreement (including, without limitation, the exhibits and schedules attached hereto), shall have the meanings given to them in Appendix I.

ARTICLE II

PURCHASE AND SALE OF ASSETS; PURCHASE PRICE

2.01 Sale of the Acquired Assets. At the Closing, subject to the terms and conditions of this Agreement, the Seller shall sell, transfer, convey, assign and deliver to the Purchaser all rights, title and interests in and to the Acquired Assets and the Business free and clear of all Encumbrances.

2.02 Excluded Assets. All of Seller’s assets other than the Acquired Assets shall be retained by Seller and deemed excluded assets (collectively, the “Excluded Assets”), including, without limitation, the following assets: (i) all cash and cash equivalents; (ii) Accounts Receivables; (iii) the assets of the Seller listed on Schedule 2.02(iii); (iv) the Software listed on Schedule 2.02(iv) (the “Excluded Software”); (v) all Employee Benefit Plans and all insurance contracts, policies and/or administrative service arrangements related thereto; (vi) employment, consulting, bonus, incentive compensation, or other similar compensation-related contracts or agreement with any employee, officer, directors, independent contractor or consultant of the Seller; (vii) all severance, retention, change in control, deferred compensation or other similar separation-related contracts or agreements with any employee, officer, directors, independent contractor or consultant of the Seller; (viii) organizational documents, qualifications to conduct business as a foreign entity, arrangements with registered agents relating to foreign qualifications, taxpayer and other identification numbers, seals, minute books, financial statements, and documents relating to the incorporation, maintenance and existence of the Seller as a corporation; (ix) all Contracts except for the Acquired Contracts; and (x) all real property, leaseholds or other interests owned, leased or operated by Seller and any buildings, structures or equipment owned or operated by the Seller, including all related leases, licenses, subleases, occupancy agreements and related Contracts.

2.03 Liabilities.

(a) Assumed Liabilities. At Closing, the Purchaser shall assume, and from and after the Closing the Purchaser shall be obligated to discharge and perform, the liabilities and obligations of the Seller under the Acquired Contracts, other than (i) such liabilities and obligations that are incurred by Seller on or prior to Closing Date, and (ii) any and all liabilities and obligations attributable to failure to perform, improper performance, breach of warranty or other breach, default or violation by Seller on or prior to the Closing Date, in each case, subject to Section 4.03 (the “Assumed Liabilities”).

(b) Excluded Liabilities. Notwithstanding anything to the contrary contained herein, except for the Assumed Liabilities, neither the Purchaser nor any of its Affiliates shall assume or otherwise be liable in respect of, or be deemed to have assumed or otherwise be liable in respect of, any debt, Claim, account payable, obligation, or other liability of the Seller, any of its Affiliates or the Business (the “Excluded Liabilities”), regardless of whether such debt, Claim, obligation, or other liability is matured or unmatured, contingent or fixed, known or unknown, and the Seller agrees that any and all Excluded Liabilities not discharged by the Seller at or prior to Closing shall be paid by the Seller.

2.04 Purchase Price; Royalties.

(a) Purchase Price. The aggregate cash purchase price (the “Purchase Price”) for the Acquired Assets and the covenants contained in Section 4.01 of this Agreement shall be Two Hundred Fifty Thousand Dollars ($250,000), payable as follows:

(i) Closing Payment. One Hundred Fifty Thousand Dollars ($150,000) (the “Closing Payment”) payable at the Closing to Seller by wire transfer in immediately available funds to such account or accounts as shall be designated by the Seller in writing at least two (2) business days in advance of the Closing.

(ii) Future Payments. One Hundred Thousand Dollars ($100,000) payable in four (4) equal payments of Twenty Five Thousand Dollars ($25,000) (each a “Future Payment”) as set forth below. On each of the six (6), nine (9), twelve (12), and fifteen (15) month anniversaries of the Closing Date (each, a “Future Payment Date”), the Purchaser shall make payment of such Future Payment to the Seller by wire transfer in immediately available funds to such account or accounts designated by the Seller in Section 2.04(a)(i).

(b) Royalties. As additional consideration for the Acquired Assets and the covenants contained in Section 4.01 of this Agreement, the Purchaser shall within thirty (30) days after the end of each Calendar Quarter make the following payments to Seller: (i) a royalty payment of ten percent (10%) of the Net Software Licensing Revenues generated during such Calendar Quarter from clients of the Business that are Governmental Authorities (whether direct or subcontracted), and (ii) a royalty payment of five percent (5%) of the Net Software Licensing Revenues generated during such Calendar Quarter from clients of the Business that are not Governmental Authorities ((i) and (ii), collectively, the “Royalty Payments”); provided, however, that the aggregate amount of all Royalty Payments payable pursuant to the terms of this Agreement shall not exceed Five Hundred Thousand Dollars ($500,000). Any overdue Royalty Payment shall earn interest at the rate of one and a half percent (1.5%) per month from the date such Royalty Payment was due until the date such Royalty Payment is paid in full. All Royalty Payments shall be treated as an increase to the Purchase Price.

(c) Net Software Licensing Revenues. As used in this Agreement, the term “Net Software Licensing Revenues” shall mean the licensing fees actually received by Purchaser from the licensing of the Owned Software or any software derivatives thereof set forth on Schedule 1.38 to third parties after deducting the following: (i) revenues related to the provision of professional services and any cost of associated hardware provided by the Company in connection with such license, (ii) all trade and other discounts, (iii) all client allowances, returns, refunds and deductions, and (iv) all sales, use, excise and other taxes.

(d) Audit Rights. Upon written request of and at the sole cost of Seller, but not more than once in each calendar year nor more than once in respect to any given calendar year, Purchaser shall permit an independent public accountant, selected by Seller and acceptable to Purchaser, which acceptance shall not be unreasonably withheld, to have access during normal business hours to only those records of Purchaser as may be reasonably necessary to verify the accuracy of any Royalty Payment due hereunder. The report prepared by such independent public accountant, a copy of which promptly shall be provided to Purchaser, shall disclose only the amount of any underpayment or overpayment of any Royalty Payment, if any, without disclosure of or reference to supporting documentation. If such independent accountant’s report shows any underpayment, Purchaser shall remit to Seller the amount of such underpayment within thirty (30) days after Purchaser’s receipt of such report, and if such underpayment exceeds five percent (5%) of a Royalty Payment due, Purchaser shall reimburse Seller for its reasonable out-of-pocket expenses for the audit, upon submission of supporting documentation. If such independent accountant’s report shows any overpayment, Seller shall remit to Purchaser the amount of such overpayment within thirty (30) days after Seller’s receipt of such report.

ARTICLE III

CLOSING AND PAYMENT OBLIGATION

3.01 Closing. The consummation of the purchase and sale contemplated by this Agreement (the “Closing”) shall be held at the offices of Pryor Cashman LLP, 7 Times Square, New York, New York on the second business day after all of the conditions to Closing set forth in Article VII are either satisfied or waived (other than conditions which, by their nature, are to be satisfied on the Closing Date). The date of the Closing is sometimes herein referred to as the “Closing Date”. By mutual agreement of the parties, the Closing may be alternatively accomplished by electronic pdf. transmission to the respective offices of legal counsel for the parties of the requisite documents, duly executed where required, with originals to be delivered by overnight courier service on the next business day following the Closing.

3.02 Deliveries by the Seller. Subject to the terms and conditions of this Agreement, in reliance on the representations, warranties and agreements of the Purchaser contained herein, and in consideration of the Purchase Price and the other consideration provided herein, the Seller agrees to deliver at the Closing the following, all reasonably satisfactory in form and substance to the Purchaser and its legal counsel: (i) the Acquired Assets; (ii) a duly executed bill of sale for all of the Acquired Assets (the “Bill of Sale”); (iii) a duly executed assignment and assumption agreement necessary to transfer to the Purchaser the Acquired Contracts and certain other Acquired Assets (the “Assignment and Assumption Agreement”); (iv) a duly executed patent and trademark assignment necessary to evidence the transfer of the Trademarks and Trademark registrations listed on Schedule 5.07(b) and the goodwill associated therewith (the “Trademark Assignment”) ; (v) all documents of title, if any, necessary to transfer to the Purchaser any of the Tangible Property; (vi) evidence reasonably satisfactory to the Purchaser that any and all Encumbrances on the Acquired Assets have been released; (vii) evidence of receipt of all consents set forth on Schedule 5.05; (viii) all documents necessary to transfer to the Purchaser the registered domain names related to the Web Sites; (ix) a certificate of Seller relating to the items set forth in Section 7.01(a), (b) and (d); and (x) all other deeds, endorsements, transfer, conveyance and assumption documents and any other instruments and documents as, in the reasonable opinion of counsel for the Purchaser, are required to vest in the Purchaser all right, title and interest in and to any of the Acquired Assets or to effectuate the terms of this Agreement.

3.03 Deliveries by the Purchaser. Subject to the terms and conditions of this Agreement, in reliance on the representations, warranties and agreements of the Seller contained herein, and in consideration of the Acquired Assets, the Purchaser agrees to deliver at the Closing the following, all reasonably satisfactory in form and substance to the Seller and its legal counsel: (i) the wire transfer(s) described in Section 2.04(a)(i); (ii) a duly executed Assignment and Assumption Agreement; (iii) duly executed Trademark Assignment; and (iv) a certificate of Purchaser relating to the items set forth in Section 7.02(a) and (b).

ARTICLE IV

COVENANTS

4.01 Agreement Not to Compete and Non-Disparagement

(a) For good and valuable consideration and in furtherance of the sale of the Acquired Assets and the Business to the Purchaser hereunder, in order to insure that the Purchaser obtains the benefits it reasonably expects to obtain hereunder and to more effectively protect the value and goodwill of the Acquired Assets and the Business, the Seller covenants and agrees that, for the period commencing on the Closing Date and ending on the fifth (5th) anniversary of the Closing Date, the Seller will neither, and will cause its Affiliates to neither, directly nor indirectly:

(i) participate or have any interest in, own, manage, operate, control, be connected with as a stockholder, director, officer, employee, member, partner or consultant, or otherwise engage, invest or participate in any business located in the United States that is competitive with the Business;

(ii) persuade or attempt to persuade any employee of Purchaser or its Affiliates to leave Purchaser’s employ, or to become employed by any other person other than Purchaser other than as a result of any general marketing or solicitation of employment that is not directed specifically to employees of Purchaser or its Affiliates; or

(iii) make any public statements which disparages the reputation of the Business, the Purchaser or its Affiliates.

The provisions of this Section 4.01(a) shall not apply to prevent Seller from owning up to five percent (5%) in the aggregate of any class of securities of any corporation engaged in the prohibited activities described above, provided that such securities are listed on a national securities exchange or registered under securities laws of the United States.

(b) Seller acknowledges that money damages will be impossible to calculate and may not adequately compensate the Purchaser in connection with an actual or threatened breach by Seller of any of the provisions of this Section 4.01. Accordingly, Seller waives all rights to raise the adequacy of the Purchaser’s remedies at law as a defense if the Purchaser seeks to enforce by injunction or other equitable relief the due and proper performance and observance of the provisions of this Section 4.01.

(c) Seller and the Purchaser acknowledge and recognize that each of the covenants contained in this Section 4.01 are integral to the sale to the Purchaser of the Acquired Assets and the Business, that without the protection of such covenants the Purchaser would not have entered into this Agreement, that the consideration paid by the Purchaser as set forth in Section 2.04 hereof and the allocation of the consideration stated on Exhibit A hereof bear no relationship to the damages the Purchaser may suffer in the event of any breach of such covenants, and that such covenants contain limitations as to time, geographical area and/or scope of activity to be restrained which are reasonable and necessary to protect the Purchaser’s business interests and the value of the Business and the Acquired Assets. If this Section 4.01 shall nevertheless for any reason be held to be excessively broad as to time, duration, geographical scope, activity or subject, the parties shall amend this Section 4.01 so that it will be enforceable to the fullest extent compatible with applicable laws that shall then apply.

4.02 Confidentiality. From and after the Closing, Seller shall, and shall cause its Affiliates to, hold, and shall use its reasonable best efforts to cause its or their respective representatives to hold, in confidence any and all information, whether written or oral, concerning the Business, except to the extent that Seller can show that such information (a) is generally available to and known by the public through no fault of Seller, any of its Affiliates or their respective Representatives; or (b) is lawfully acquired by Seller, any of its Affiliates or their respective Representatives from and after the Closing from sources which are not prohibited from disclosing such information by a legal, contractual or fiduciary obligation. If Seller or any of its Affiliates or their respective Representatives are compelled to disclose any information by judicial or administrative process or by other requirements of Law, Seller shall promptly notify Purchaser in writing and shall disclose only that portion of such information which Seller is advised by its counsel in writing is legally required to be disclosed, provided that Seller shall use reasonable best efforts to obtain an appropriate protective order or other reasonable assurance that confidential treatment will be accorded such information.

4.03 Unassignable Governmental Contracts; Transition Expenses and Fees. Prior to Closing, Seller shall be solely responsible for the cost of obtaining any and all consents to the assignment of Acquired Contracts, including, without limitation, Governmental Contracts. In the event Seller is unable to assign any Governmental Contract to Purchaser on or prior to Closing (each, an “Unassignable Governmental Contract”), (i) Seller shall reasonably cooperate with Purchaser in any arrangement necessary or desirable to provide to Purchaser the benefits of such Unassignable Governmental Contracts at Purchaser’s sole cost and expense except for de minimis costs and expenses which shall be borne by Seller, and (ii) Purchaser shall be liable for all of Seller’s obligations incurred following the Closing Date pursuant to such Governmental Contracts (other than those obligations attributable to failure to perform, improper performance, breach of warranty or other breach, default or violation by Seller on or prior to the Closing Date).

4.04 Employees.

(a) Offers of Employment. Purchaser may offer employment (on an “at will” basis, to the extent permitted by law) to Seller’s former employees listed on Schedule 4.04(a) (each, an “Offered Employee”), as determined in Purchaser’s sole discretion and subject to Purchaser’s standard employment screening policies. Each Offered Employee who accepts an offer of employment from Purchaser is referred to herein as a “Transferred Employee”. Notwithstanding anything herein to the contrary, Purchaser shall not have any responsibility for, and Seller shall retain and hold Purchaser harmless and indemnify Purchaser with respect to, any and all liabilities (including statutory or contractual severance benefits) arising as a result of the actual or constructive termination of an Offered Employee’s employment with Seller.

(b) Employee Liabilities. Purchaser shall not be liable for, and the Seller shall pay, perform or otherwise discharge as the same shall become due and payable, any liabilities arising out of or relating to employment of its employees (including, without limitation, the Offered Employees) on and prior to the Closing Date, including, but not limited to, liabilities for wages for services, accrued vacation and sick leave, Employee Benefit Plans and claims arising out of or relating to such individual’s employment or termination thereof.

(c) No Third-Party Beneficiaries; No Guarantee of Employment. Notwithstanding anything in this Section 4.04 to the contrary, nothing contained herein, whether express or implied, shall be treated as an establishment, amendment or other modification of any Employee Benefit Plan or any employee benefit plan of Seller or Purchaser. Seller and Purchaser acknowledge and agree that all provisions contained in this Section 4.04 are included for their sole benefit, and that nothing in this Section 4.04, whether express or implied, shall create any third party beneficiary or other rights: (i) in any other Person, including any Offered Employee, any participant in any Employee Benefit Plan or employee benefit plan of Purchaser, or any dependent or beneficiary thereof, or (ii) to continued employment with Seller or Purchaser or to any particular term or condition of employment.

4.05 Taxes.

(a) Seller shall be responsible for the payment of all Taxes, including, without limitation, transfer, documentary, use, stamp, registration, real property transfer, recording, stock transfer and other similar taxes and fees (including any penalties and interest), which may be payable with respect to the transactions contemplated by this Agreement, and shall file all necessary Tax returns related thereto. Each of the parties waive compliance with the bulk sales Laws and any other similar Laws (including state Tax Laws) in any applicable jurisdiction in respect of the transactions contemplated by this Agreement; provided, however, that the Seller shall pay and discharge when due all liabilities asserted against Purchaser or the Acquired Assets by reason of such noncompliance and shall promptly take all necessary actions required to remove any Encumbrance which may be placed upon any of the Acquired Assets by reason of such noncompliance. Each of the parties acknowledges and agrees that the other party, its Affiliates or Representatives have not provided any advice to such party or its Affiliates or any of their respective Representatives with respect to Taxes arising out of, related to or in connection with the transactions contemplated by this Agreement.

(b) Purchase Price Allocation. The Purchaser and the Seller shall allocate the Purchase Price and the amount of the Assumed Liabilities among the Acquired Assets for Tax purposes in a manner consistent with the methodology set forth in the Allocation Schedule attached hereto as Exhibit A, which shall be in compliance with Section 1060 of the Internal Revenue Code of 1986, as amended, and the treasury regulations promulgated thereunder. Except as otherwise required by law, (i) none of the parties shall take a position on any Tax return or in any Proceeding inconsistent with such allocation and (ii) the Purchaser and the Seller shall file all Tax returns and forms consistent with such allocation.

(c) Conflict. To the extent of any conflict between this Section 4.05 and the other provisions of this Agreement, the provisions of this Section 4.05 shall govern and control.

4.06 Change of Name. Promptly following the Closing, the Purchaser, at Purchaser’s sole expense, will cause any Website or URL included in the Acquired Assets having the name “Peerstream” or any derivative thereof to change the name thereof as soon as practicable after Closing.

4.07 Conduct of Business Prior to the Closing. From the date hereof until the Closing, except as otherwise consented to in writing by Purchaser, Seller shall use its commercially reasonable efforts to (a) conduct the Business in the ordinary course of business consistent with past practice and in compliance with all applicable laws, and (b) maintain and preserve intact the Acquired Assets, the Business and its operations and the rights, goodwill and relationships of its employees, customers, and others having relationships with the Business.

4.08 Access to Information; Cooperation with Financing. From the date hereof until Closing, Seller shall, at Purchaser’s sole cost and expense, (i) afford Purchaser and its Representatives reasonable access to and the right to inspect all of the Acquired Assets and

Seller’s books and records related to the Business, (ii) furnish Purchaser and its Representatives with such financial, operating and other data and information related to the Business as Purchaser and its Representatives may reasonably request, (iii) at the request of the Purchaser, use commercially reasonable efforts to cooperate with the Purchaser in connection with the arrangement of the financing described in Section 7.01(e), and (iv) instruct the Representatives of Seller to cooperate with Purchaser in connection with the foregoing; provided, however, that any investigation or requested cooperation pursuant to this Section 4.08 shall not to unreasonably interfere with the conduct of the Business or the Continuing Business.

4.09 Further Assurances. Each of the Seller and the Purchaser shall cooperate, and take, or cause to be taken, all actions, and to do, or cause to be done, all things necessary, proper or advisable under applicable Law or as reasonably requested by the other party to consummate and make effective the transactions contemplated by this Agreement and transfer, assign and vest in Purchaser the Acquired Assets. Following the Closing Seller shall (at Seller’s cost and expense) (i) use its commercially reasonable efforts to obtain any and all required consents of third parties which Seller has not obtained as of the Closing Date (subject to Section 4.03), and (ii) at Purchaser’s sole cost and expense, testify in any Proceeding, cooperate with the Purchaser in perfecting and protecting Purchaser’s rights and interests in Acquired Intellectual Property, and execute all documents, agreements or instruments, make all assignments, and use its commercially reasonable efforts to assist Purchaser, its Affiliates, successors, assigns and nominees in connection with obtaining and enforcing proper protection for the Acquired Intellectual Property, including with respect to all future patent applications of Purchaser relating to the Acquired Intellectual Property.

4.10 No Solicitation of Other Bids. From the date hereof until Closing, Seller shall not, and shall not authorize or permit any of its Affiliates or any of its or their Representatives to, directly or indirectly, (i) encourage, solicit, initiate, facilitate or continue inquiries regarding an Acquisition Proposal; (ii) enter into discussions or negotiations with, or provide any information to, any Person concerning a possible Acquisition Proposal; or (iii) enter into any agreements or other instruments (whether or not binding) regarding an Acquisition Proposal. For purposes of this Section 4.10, “Acquisition Proposal” means any inquiry, proposal or offer from any Person (other than Purchaser or any of its Affiliates) relating to the direct or indirect disposition, whether by sale, merger or otherwise, of all or any portion of the Business or the Acquired Assets.

4.11 Closing Conditions. From the date hereof until Closing, Seller and Purchaser shall use commercially reasonable efforts to take such actions as are necessary to satisfy the closing conditions set forth in Article VII.

4.12 Waiver of Non-Competition and Non-Solicitation Provisions. Seller, on behalf of itself and its successors and assigns, hereby irrevocably waives, any and all rights whatsoever to which Seller is entitled under (i) the provisions of Section 4(b) and Section 7(a) of the Harrington Employment Agreement and Sackowitz Employment Agreement, respectively, and any employment agreement, consulting agreement or other agreement with any Transferred Employee, in each case, with respect to any representations and restrictive covenants which may prohibit competition with the Business, and (ii) the provisions of Section 7(b)(i) of the Harrington Employment Agreement and the Sackowitz Employment Agreement, respectively, and any employment agreement, consulting agreement or other agreement with any Transferred Employee, in each case, with respect to any restrictive covenants which may prohibit interference with or attempt to solicit business with any customer and/or business partner of the Seller as it may relate to the Business (for the avoidance of doubt, except as specifically set forth herein, the following waiver is not intended to waive any solicitation restrictions with respect to any employee or independent contractor of Seller), in each case, including, but not limited to, any enforcement rights arising from, relating to, or contained in any such agreement or otherwise available at law.

ARTICLE V

REPRESENTATIONS AND WARRANTIES OF THE SELLER

In order to further induce the Purchaser to enter into and perform this Agreement, the Seller hereby represents and warrants to the Purchaser, as follows:

5.01 Organization. The Seller is a corporation duly organized, validly existing and in good standing under the laws of the State of New York. The Seller has all requisite corporate power and authority to enable it to own, lease or otherwise hold the Acquired Assets and to carry on the Business as presently conducted. The Seller is duly qualified to do business and in good standing in each jurisdiction in which the nature of the Business or the ownership, leasing or holding of the Acquired Assets makes such qualification necessary except when the failure to be so qualified would not have a material adverse effect on the Business.

5.02 Authorization. The Seller has all requisite power and authority to enter into this Agreement and each Related Document to which it is a party and to consummate the transactions contemplated hereby and thereby. All acts and other proceedings required to be taken by the Seller to authorize the execution, delivery and performance of this Agreement and each Related Document to which it is a party, and the consummation of the transactions contemplated hereby and thereby have been duly and properly taken.

5.03 Valid and Binding. This Agreement and each Related Document constitutes a valid and binding obligation of the Seller enforceable against the Seller in accordance with its terms, except that (i) such enforcement may be limited by or subject to any bankruptcy, insolvency, reorganization, moratorium or similar laws now or hereafter in effect relating to or limiting creditors’ rights generally and (ii) the remedy of specific performance and injunctive and other forms of equitable relief are subject to certain equitable defenses and to the discretion of the court before which any Proceeding therefor may be brought.

5.04 No Violation. Except as set forth on Schedule 5.04 hereto, the execution and delivery of this Agreement and each Related Document by the Seller, and the consummation of the transactions contemplated hereby and thereby and compliance with the terms hereof and thereof does not and will not (subject only to obtaining any required consents, approvals, authorizations, exemptions or waivers set forth on Schedule 5.05 hereto) conflict with, or result in any violation of or default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, cancellation or acceleration of any obligation or to loss of a material benefit under or result in the creation of any Encumbrance of any kind upon any of the Seller’s assets under, any provision of (i) the Certificate of Incorporation or By-laws of the Seller, (ii) any note, bond, mortgage, indenture, deed of trust, license, lease, contract, commitment or loan or other Contract to which the Seller is a party or by which any of the Acquired Assets are bound or otherwise affected (including, without limitation, the Acquired Contracts), or (iii) any Law applicable to the Seller or the Acquired Assets.

5.05 Consents and Approvals. Except as set forth on Schedule 5.05 hereto, no consent, approval or authorization of, or declaration, filing or registration with, any governmental or regulatory authority or any court or other tribunal, and no consent or waiver of any party to any Acquired Contract is required to be obtained by the Seller in connection with the execution, delivery and performance of this Agreement and each Related Document or the consummation of the transactions contemplated hereby or thereby.

5.06 Contracts and Commitments. Schedule 1.02(d) sets forth a true, complete and correct list of all Contracts related to the operation, use or maintenance of the Business or the Acquired Assets. The Acquired Contracts constitute all of the contracts and agreements necessary for the Purchaser to operate, use and maintain the Acquired Assets and the Business following Closing in the same manner as operated, used and maintained by Seller prior to Closing. Except as set forth on Schedule 5.06 hereto, (i) all of the Acquired Contracts constitute valid and binding agreements of the Seller and each other party thereto, enforceable in accordance with their terms; (ii) with respect to the Acquired Contracts there are no existing defaults by the Seller or, to Knowledge, by any other party thereto and there is no event which (whether with or without notice, lapse of time or the happening or occurrence of any other event) would constitute a default under the Acquired Contracts by the Seller or, to Knowledge, by any other party thereto; (iii) the Seller is not restricted by agreement from carrying on in any geographical location the Business as conducted on the Closing Date; and (iv) there are no negotiations pending or in progress to revise any Acquired Contract.

5.07 Intellectual Property

(a) Schedule 1.02(c) sets forth a true, complete and correct list of each item of Acquired Intellectual Property. Schedule 1.36 sets forth a true, complete and correct list of each item of Owned Intellectual Property. Schedule 1.34 sets forth a true, complete and correct list of each item of Licensed Intellectual Property.

(b) Schedule 5.07(b) sets forth a true, complete and correct list of: (i) all Intellectual Property Registrations of the Seller or otherwise relating to the Acquired Intellectual Property (including, without limitation the Owned Intellectual Property and the Licensed Intellectual Property), specifying as to each, as applicable, the title, mark, or design, the jurisdiction by or in which it has been issued, registered or filed; the patent, registration or application serial number; the issue, registration or filing date; and the current status; (ii) all unregistered Copyrights and Trademarks included in the Acquired Intellectual Property; (iii) all Software and Programs included in the Acquired Intellectual Property; and (iv) each Service currently or previously provided or marketed by the Seller in connection with the operation of the Business.

(c) Schedule 5.07(c) contains a correct, current and complete list of all Intellectual Property Agreements: (i) under which Seller is a licensor or otherwise grants to any Person any right or interest relating to any Acquired Intellectual Property; (ii) under which Seller is a licensee or otherwise granted any right or interest relating to the Intellectual Property of any Person; and (iii) which otherwise relate to the Seller’s ownership or use of any Intellectual Property in the conduct of the Business as currently conducted or proposed to be conducted, in each case identifying the Intellectual Property covered by such Intellectual Property Agreement. Seller has provided Purchaser with true and complete copies (or in the case of any oral agreements, a complete and correct written description) of all such Intellectual Property Agreements, including all modifications, amendments and supplements thereto and waivers thereunder. Each Intellectual Property Agreement is valid and binding on Seller in accordance with its terms and is in full force and effect. To the Seller’s Knowledge, neither Seller nor any other party thereto is in breach of or default under, and Seller has not provided or received any written notice of breach of, default under, or intention to terminate (including by non-renewal), any Intellectual Property Agreement.

(d) Seller is the sole and exclusive legal and beneficial, and with respect to the Intellectual Property Registrations, record, owner of all right, title and interest in and to the Owned Intellectual Property, and has the valid and enforceable right to use the Licensed Intellectual Property and all other Acquired Intellectual Property, in each case, free and clear of Encumbrances. Seller has entered into binding, valid and enforceable written Contracts with each current and former employee, consultant and independent contractor who is or was involved in or has contributed to the invention, creation, or development of any Acquired Intellectual Property during the course of employment or engagement with Seller whereby such employee, consultant or independent contractor (i) acknowledges Seller’s exclusive ownership of all Owned Intellectual Property invented, created or developed by such employee, consultant or independent contractor within the scope of his or her employment or engagement with Seller; and (ii) grants to Seller a present, irrevocable assignment of any ownership interest such employee, consultant or independent contractor may have in or to such Intellectual Property.

(e) Schedule 5.07(e) sets forth a complete and accurate list of all Publicly Available Software that has been or is currently being used by Seller in the Business. With respect to any Publicly Available Software that is or has been used by the Seller in any way in connection with any Owned Software, to the Seller’s Knowledge, all use and distribution of Owned Software and Publicly Available Software by or through the Seller is in full compliance with all licenses applicable thereto, including all copyright notice and attribution requirements. Seller has not disclosed to any third party or escrowed, or agreed to disclose to any third party or escrow, any Source Code of any Owned Software.

(f) To the Seller’s Knowledge, the Acquired Intellectual Property has not infringed, misappropriated, or otherwise violated the Intellectual Property or other rights of any Person and is not currently infringing, misappropriating, or otherwise violating the Intellectual Property or other rights in any Person. To the Seller’s Knowledge, no Person is infringing, misappropriating, or otherwise violating any Acquired Intellectual Property.

5.08 Title to the Assets. Except as described on Schedule 5.08, the Seller has good, marketable and legal title to, or a valid leasehold interest in, the Acquired Assets free and clear of all Encumbrances, except for Encumbrances for Taxes not yet due and payable.

5.09 Licenses; Permits. Schedule 5.09 sets forth, with respect to the Business and the Acquired Assets, all Governmental Authorizations and Permits and, except as set forth in Schedule 5.09, such Governmental Authorizations and Permits constitute all approvals, authorizations, certifications, consents, variances, permissions, licenses, or Permits to or from, or filings, notices, or recordings to or with, federal, state, or local Governmental Authorities that are required for the ownership and use of the Acquired Assets and the conduct of the Business under federal, state, and local Law, zoning requirement, or governmental restriction.

5.10 Taxes. All Tax returns with respect to the Business required to be filed by Seller for any Tax periods prior to Closing have been, or will be, timely filed. The term “Taxes” means all federal, state, local, foreign, and other income, gross receipts, sales, use, production, ad valorem, transfer, documentary, franchise, registration, profits, license, withholding, payroll, employment, unemployment, excise, severance, stamp, occupation, premium, property (real or personal), customs, duties, or other taxes, fees, assessments, or charges of any kind whatsoever, together with any interest, additions, or penalties with respect thereto.

5.11 Employees. Except as set forth in Schedule 5.11(b): (i) no Offered Employee is due severance or other payment; and (ii) no Offered Employees are due transaction bonuses, change in control payments, or other payments that will be trigged by this transaction.

5.12 Litigation. Except as set forth on Schedule 5.12, to Seller’s Knowledge there is no written Claim or Proceeding pending or threatened in writing relating to or affecting the Business, the Acquired Assets or the Assumed Liabilities.

5.13 Compliance with Laws. To Seller’s Knowledge, Seller is currently in compliance, and has at all times prior to the date hereof been in compliance, in all material respects with all Laws applicable to the conduct of the Business as currently conducted or the ownership, operation, use and maintenance of the Acquired Assets.

5.14 Broker’s Fees. Neither the Seller nor anyone acting on their behalf has made any commitment or done any other act which would create any liability for any brokerage, finder’s or similar fee or commission in connection with the transactions contemplated by this Agreement.

ARTICLE VI

REPRESENTATIONS AND WARRANTIES OF PURCHASER

In order to further induce the Seller to enter into and perform this Agreement, the Purchaser hereby represents and warrants to the Seller as follows:

6.01 Corporate Organization; Due Authorization. The Purchaser is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Delaware and has full corporate power to execute, deliver and perform this Agreement and each Related Document to which it is a party. The execution, delivery and performance of this Agreement and all Related Documents have been duly and validly authorized by all necessary corporate actions on the part of the Purchaser.

6.02 Valid and Binding. This Agreement constitutes (and, when executed and delivered at Closing, each Related Document, to the extent that the Purchaser is a party thereto, will constitute) a valid and binding obligation of the Purchaser, enforceable against the Purchaser in accordance with its terms, except that (i) such enforcement may be limited by or subject to any bankruptcy, insolvency, reorganization, moratorium or similar Laws now or hereafter in effect relating to or limiting creditors’ rights generally and (ii) the remedy of specific performance and injunctive and other forms of equitable relief are subject to certain equitable defenses and to the discretion of the court before which any Proceeding therefor may be brought.

6.03 Consents and Approvals of Governmental Authorities. No consent, approval or authorization of, or declaration, filing or registration with, any Governmental Authority is required to be obtained by the Purchaser in connection with the execution, delivery and performance of this Agreement or the consummation of the transactions contemplated hereby.

6.04 No Violation. The execution and delivery of this Agreement and each Related Document by the signatories thereto, and the consummation of the transactions contemplated hereby and thereby and compliance with the terms hereof and thereof does not and will not, conflict with, or result in any violation of or default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, cancellation or acceleration of any obligation or to loss of a material benefit under or result in the creation of any Encumbrance of any kind upon any of the properties or assets of the Purchaser under, any provision of (i) the Articles of Organization or Operating Agreement of the Purchaser, (ii) any note, bond, mortgage, indenture, deed of trust, license, lease, commitment or loan or other Contract to which the Purchaser is a party or by which any of its properties or assets are bound, or (iii) any judgment, order, decree, statute, law, ordinance, rule or regulation applicable to the Purchaser or its property or assets.

6.05 Broker’s Fees. Except as set forth on Schedule 6.05, the fees and expenses of which shall be paid solely by the Purchaser, neither the Purchaser nor anyone acting on its behalf has made any commitment or done any other act which would create any liability for any brokerage, finder’s or similar fees or commissions in connection with the transactions contemplated by this Agreement.

ARTICLE VII

CONDITIONS TO CLOSING

7.01 Conditions to Obligations of the Purchaser. The obligations of Purchaser to consummate the transactions contemplated by this Agreement shall be subject to the fulfillment or Purchaser’s waiver, at or prior to the Closing, of each of the following conditions:

(a) Representations and warranties of Seller contained in this Agreement, the Related Documents and any certificate or other writing delivered pursuant hereto shall be true and correct on and as of the date hereof and on and as of the Closing Date with the same effect as though made at and as of such date (except those representations and warranties that address matters only as of a specified date, the accuracy of which shall be determined as of that specified date in all respects).

(b) Seller shall have duly performed and complied in all material respects with all agreements and covenants required by this Agreement and each of the Related Documents to be performed or complied with by it prior to or on the Closing Date.

(c) No Proceeding shall have been commenced against Purchaser or Seller, which would prevent the Closing. No injunction or restraining order shall have been issued by any Governmental Authority, and be in effect, which restrains or prohibits any transaction contemplated hereby.

(d) There shall not have occurred any event that resulted in a material adverse effect on the Business or the Acquired Assets, or that could reasonably be expected to have, individually or in the aggregate, a material adverse effect on the Business or the Acquired Assets.

(e) The Purchaser shall have received financing, on terms acceptable to Purchaser in its sole discretion, that is sufficient to fund the Closing Payment and all other Purchaser transaction expenses related to the negotiation, execution and closing of this Agreement (as determined by Purchaser).

(f) Seller shall have delivered to Purchaser the documents and other deliveries set forth in Section 3.02.

7.02 Conditions to Obligations of Seller. The obligations of Seller to consummate the transactions contemplated by this Agreement shall be subject to the fulfillment or Seller’s waiver, at or prior to the Closing, of each of the following conditions:

(a) Representations and warranties of Purchaser contained in this Agreement, the Related Documents and any certificate or other writing delivered pursuant hereto shall be true and correct on and as of the date hereof and on and as of the Closing Date with the same effect as though made at and as of such date (except those representations and warranties that address matters only as of a specified date, the accuracy of which shall be determined as of that specified date in all respects).

(b) Purchaser shall have duly performed and complied in all material respects with all agreements and covenants required by this Agreement and each of the Related Documents to be performed or complied with by it prior to or on the Closing Date.

(d) Purchaser shall have delivered to Seller the documents and other deliveries set forth in Section 3.03.

ARTICLE VIII

SURVIVAL; INDEMNIFICATION

8.01 Survival. All representations and warranties made by any party hereto in this Agreement or in the attached Schedules or in any exhibit or certificate delivered pursuant hereto shall survive the Closing for a period of twelve (12) months after the Closing Date; provided, however, that the representations and warranties in (i) Section 5.01 (Organization), Section 5.02 (Authorization), Section 5.03 (Valid and Binding), and Section 5.08 (Title to the Acquired Assets) (collectively, the “Fundamental Representations”) shall survive indefinitely, and (ii) Section 5.10 (Taxes) and Section 5.11 (Employees) shall survive for the full period of all applicable statutes of limitations plus sixty (60) days. All covenants and agreements of the parties contained herein shall survive the Closing indefinitely or for the period explicitly specified therein.

8.02 Notice of Damages. A party seeking indemnity hereunder (the “Indemnified Party”) will give the party from whom indemnity is sought hereunder (the “Indemnitor”) prompt notice (hereinafter, the “Indemnification Notice”) of any demands, claims, actions or causes of action (collectively, “Claims”) asserted against the Indemnified Party. Failure to give such notice shall not relieve the Indemnitor of any obligations which the Indemnitor may have to the Indemnified Party under this Article VIII, except to the extent that such failure has prejudiced the Indemnitor under the provisions for indemnification contained in this Agreement or the Indemnitor’s ability to defend such Claim. For purposes of this Article VIII, (i) the Purchaser, on the one hand, and the Seller, on the other hand, shall be deemed to be the “Indemnified Party”, and (ii) the Purchaser, on the one hand, and the Seller on the other hand, shall be deemed to be the “Indemnitors”, as the case may be.

8.03 Agreements to Indemnify.

(a) Subject to the terms and conditions of this Article VIII, Seller covenants and agrees to indemnify, defend and hold harmless the Purchaser and its Affiliates (including any officer, director, stockholder, partner, shareholder, member, employee, agent or Representative of any thereof) (a “Purchaser Affiliate”) from and against all assessments, losses, damages, liabilities, costs and expenses, including without limitation interest, penalties and reasonable fees and expenses of legal counsel (collectively, “Damages”) imposed upon or incurred by the Purchaser or any Purchaser Affiliate arising out of, in connection with or resulting from: (i) any inaccuracy in or breach of any representation or warranty of the Seller contained in or made pursuant to this Agreement or any Related Document to which the Seller is a party; (ii) any breach or nonfulfillment of any covenant or agreement of the Seller contained in or made pursuant to this Agreement or any Related Document to which the Seller is a party; (iii) all Excluded Assets; (iv) all Excluded Liabilities; (v) any and all Claims based upon, resulting from or arising out of the ownership and operation of the Business or the Acquired Assets on or prior to the Closing Date, whether or not incurred prior to the Closing Date (other than with respect to the Assumed Liabilities); (vi) any and all Damages or other losses for or in respect of Taxes actually incurred by, imposed upon, or assessed against Purchaser as a result of or relating to any Tax liability of Seller or the Business for any period ending on or before the Closing Date; and (vii) any and all Claims made by creditors of the Seller including, without limitation, relating to the provisions of any bulk sales laws and any other similar laws (including state Tax laws) of any state or other jurisdiction that may be applicable to the transactions contemplated hereby.

(b) Subject to the terms and conditions of this Article VIII, the Purchaser covenants and agrees to indemnify, defend and hold harmless the Seller and its Affiliates (including any successor or assigns, officer, director, stockholder, partner, member, employee, agent or Representative thereof) from and against all Damages imposed upon or incurred by such Indemnified Party arising out of or in connection with or resulting from: (i) any breach of any representation or warranty of, or nonfulfillment of any covenant or agreement of, the Purchaser contained in or made pursuant to this Agreement or any Related Document to which the Purchaser is a party; (ii) any and all Assumed Liabilities; and (iii) any and all Claims based upon, resulting from or arising out of the ownership or operation of the Business or the Acquired Assets after the Closing Date, provided that such Claims do not stem from or relate to any event that occurred prior to Closing.

(c) The Indemnitor shall reimburse an Indemnified Party promptly after delivery of an Indemnification Notice certifying that the Indemnified Party has incurred Damages after compliance with the terms of this Article VIII; provided, however, that the Indemnitor shall have the right to contest any such Damages or its obligations to indemnify therefor in accordance with the terms of this Agreement. No party shall be liable for any inaccuracy or breach of any representation or warranty contained in this Agreement if the party seeking indemnification for such breach or inaccuracy had knowledge of such breach or inaccuracy prior to Closing. Prior to Closing, Purchaser shall notify Seller in writing of any such inaccuracy or breach by Seller of which Purchaser has actual knowledge.

8.04 Conditions of Indemnification of Third Party Claims. The obligations and liabilities of an Indemnitor under Section 8.03 hereof with respect to Damages resulting from Claims by Persons not party to this Agreement shall be subject to the following terms and conditions:

(a) Promptly after delivery of an Indemnification Notice in respect of a Claim and subject to paragraph (c) of this Section 8.04, the Indemnitor may elect, by written notice to the Indemnified Party, to undertake the defense thereof with counsel reasonably satisfactory to the Indemnified Party, at the sole cost and expense of Indemnitor. If the Indemnitor chooses to defend any Claim, the Indemnified Party shall cooperate with all reasonable requests of the Indemnitor and shall make available to the Indemnitor any books, records or other documents within its control that are necessary or appropriate for such defense.

(b) In the event that the Indemnitor, within a reasonable time after receipt of an Indemnification Notice, does not so elect to defend such Claim, the Indemnified Party will have the right (upon further notice to the Indemnitor) to undertake the defense, compromise or settlement of such Claim for the account of the Indemnitor, subject to the right of the Indemnitor to assume the defense of such Claim pursuant to the terms of paragraph (a) of this Section 8.04 at any time prior to settlement, compromise or final determination thereof, provided, that the Indemnitor reimburses in full all costs of the Indemnified Party (including reasonable attorney’s fees and expenses) incurred by it in connection with such defense prior to such assumption.

(c) Anything in this Section 8.04 to the contrary notwithstanding, (i) if the Indemnified Party reasonably believes there is a reasonable probability that a Claim may materially and adversely affect the Indemnified Party, the Indemnified Party shall have the right to participate in the defense, compromise or settlement of such Claim, provided that the Indemnitor shall not be liable for expenses of separate counsel of the Indemnified Party engaged for such purpose, and (ii) no Person who has undertaken to defend a Claim under Section 8.04(a) hereof shall, without written consent of all Indemnified Parties, settle or compromise any Claim or consent to entry of any judgment which does not include as an unconditional term thereof the release by the claimant or the plaintiff of all Indemnified Parties from all liability arising from events which allegedly give rise to such Claim.

8.05 Limitations on Indemnification. Notwithstanding anything to the contrary provided elsewhere in this Agreement, the obligations of any Indemnitor under this Agreement to indemnify any Indemnified Party with respect to any Claim pursuant to Section 8.03 shall be of no force and forever barred unless the Indemnified Party has given the Indemnitor notice of such Claim prior to the end of the applicable survival period. The Purchaser shall not be entitled to indemnity pursuant to Section 8.03(a)(i) until the aggregate amount of all Claims exceeds $25,000 (the “Threshold Amount”) at which time Purchaser shall be entitled to recover the aggregate amount of all Claims including those in the Threshold Amount. The maximum indemnification pursuant to Section 8.03(a)(i) to which the Purchaser shall be entitled shall be limited to twenty-five percent (25%) of the aggregate of the Purchase Price and the Royalty Payments paid to Seller (the “Indemnification Cap”); provided, however, that Claims (or Damages) arising out of or related to (i) fraud by Seller, or (ii) a breach of the Fundamental Representations shall not be subject to the Indemnification Cap. In any event, the parties shall fully cooperate with each other and their respective counsel in accordance with Section 8.04 in connection with any such litigation, defense, settlement or other attempted resolution.

8.06 Exclusive Remedy. From and after the Closing, except in the event of fraud, the Seller shall not be liable or responsible in any manner whatsoever to the Purchaser or any Purchaser Affiliate whether for indemnification or otherwise, except pursuant to the indemnification remedies and other remedies provided in this Article VIII which shall be the exclusive remedies and causes of action of the Purchaser and Purchaser Affiliates, with respect to any matter arising out of or in connection with this Agreement or any Schedule or Exhibit hereto or any certificate delivered by the Seller in connection herewith.

8.07 No Consequential Damages. No party shall be obligated to indemnify the other party pursuant to this Article VIII with respect to any indirect, special, incidental, consequential or punitive damages or loss of profits relating to the breach or alleged breach of any representation, warranty, covenant or agreement contained herein or in any Related Documents.

8.08 Insurance and Tax Benefits. Any Indemnified Party’s right to indemnification pursuant to this Article VIII will be reduced by all Tax benefits and insurance or other third party indemnification proceeds received by an Indemnified Party as a result of such Damages.

ARTICLE IX

TERMINATION

9.01 Termination. This Agreement may be terminated at any time prior to the Closing:

(a) by the mutual written consent of Seller and Purchaser;

(b) by Purchaser by written notice to Seller if Purchaser is not then in material breach of any provision of this Agreement and there has been a breach, inaccuracy in or failure to perform any representation, warranty, covenant or agreement made by Seller pursuant to this Agreement that would give rise to the failure of any of the conditions specified in Article VII and such breach, inaccuracy or failure has not been cured by Seller within ten (10) days of Seller’s receipt of written notice of such breach from Purchaser;

(c) by Seller by written notice to Purchaser if Seller is not then in material breach of any provision of this Agreement and there has been a breach, inaccuracy in or failure to perform any representation, warranty, covenant or agreement made by Purchaser pursuant to this Agreement that would give rise to the failure of any of the conditions specified in Article VII and such breach, inaccuracy or failure has not been cured by Purchaser within ten (10) days of Purchaser’s receipt of written notice of such breach from Seller; or

(d) by either party if any of the conditions set forth in Article VII shall not have been fulfilled by July 31, 2020 unless, in each case, such failure shall be due to the failure of the terminating party to perform or comply with any of the covenants or agreements hereof to be performed or complied with by it prior to the Closing.

9.02 Effect of Termination. In the event of the termination of this Agreement in accordance with this Article IX, this Agreement shall forthwith become void and there shall be no liability on the part of any party hereto except:

(a) as set forth in this Article IX and Sections 10.2 through 10.12; and

(b) that nothing herein shall relieve any party hereto from liability for any willful breach of any provision hereof.

ARTICLE X

MISCELLANEOUS PROVISIONS

10.01 License to Excluded Software. Effective as of the Closing Date, Seller hereby grants to Purchaser, its Affiliates (whether or not presently existing) and their successors a perpetual, fully-paid, royalty-free, transferrable, sub-licensable, non-exclusive license to the Excluded Software (the “License”); provided, however, that the License shall not be transferable to an Affiliate or legal successor of Purchaser that directly competes with Seller’s Continuing Business.

10.02 Expenses. Except as otherwise provided herein, the Seller shall pay all expenses incurred by or on behalf of the Seller, and the Purchaser shall pay all expenses incurred by or on behalf of the Purchaser, in each case in connection with this Agreement or any transaction contemplated by this Agreement, whether or not such transaction shall be consummated, including without limitation all fees of its or their respective legal counsel and accountants.

10.03 Notices. All notices, requests, demands, consents or waivers and other communications required or permitted hereunder shall be in writing and shall be deemed to have been duly given if delivered by hand or by facsimile (with immediate confirmation), one business day after being sent if by nationally recognized overnight courier or if mailed, then four days after being sent by certified or registered mail, return receipt requested with postage prepaid:

(i)

If to the Purchaser, to:

SecureCo, LLC

165 West End Avenue, #19N

New York, NY 10023

Attn: Alexander Harrington, CEO

with a copy to:

Pepper Hamilton LLP

70 Linden Oaks, Suite 210

Rochester, NY 14625

Attention: Andrew P. Zappia, Esq.

Facsimile: 585.270.2179

(ii)

If to the Seller, to:

Paltalk, Inc.

122 East 42nd Street, 34th Floor

New York, NY 10168

Attention: Mr. Jason Katz

Chief Executive Officer

Facsimile: ________________

with a copy to:

Pryor Cashman LLP

7 Times Square, 39th Floor New York, New York 10036

Attention: Eric B. Woldenberg, Esq.

Facsimile: 212-326-0806

or, in each case, to such other person or address as any party shall furnish to the other parties in writing.

10.04 Binding; No Assignment. This Agreement and all of the provisions hereof shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns, but neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by the Seller without the prior written consent of the Purchaser. The Purchaser may assign all or part of this Agreement and its rights hereunder, (i) to an Affiliate or (ii) from and after the Closing to a Person, not a party to this Agreement, who acquires substantially all of the assets of such party and who assumes all of the obligations of such party hereunder, provided in each such case that no such assignment shall release such party from its duties and obligations hereunder.

10.05 Severability. If in any jurisdiction, any provision of this Agreement or its application to any party or circumstance is restricted, prohibited or unenforceable, such provision shall, as to such jurisdiction, be ineffective only to the extent of such restriction, prohibition or unenforceability without invalidating the remaining provisions hereof and without affecting the validity or enforceability of such provision in any other jurisdiction or its application to other parties or circumstances. In addition, if any one or more of the provisions contained in this Agreement shall for any reason in any jurisdiction be held to be excessively broad as to time, duration, geographical scope, activity or subject, it shall be construed, by limiting and reducing it, so as to be enforceable to the extent compatible with the applicable law of such jurisdiction as it shall then appear.

10.06 Governing Law; Consent to Jurisdiction and Venue.

(a) This Agreement shall be governed by the laws of the State of New York as to all matters including, but not limited to, matters of validity, construction, effect, performance and liability, without consideration of conflicts of laws provisions contained therein, and the courts of the State of New York have exclusive jurisdiction of all disputes with respect to an alleged breach of any representation, warranty, agreement or covenant of this Agreement, including any dispute relating to the construction or interpretation of the rights and obligations of any party, which is not resolved through discussion between the parties.

(b) Each of the parties hereby irrevocably and unconditionally submits to the exclusive jurisdiction of any State or Federal court sitting in New York County in any Proceeding commenced by either party or to which either party is a party arising out of or relating to this Agreement, any Related Document or any transaction contemplated hereby or thereby. The parties hereby irrevocably waive, to the fullest extent it or they may effectively do so, the defense of an inconvenient forum to the maintenance of such Proceeding. The parties also irrevocably and unconditionally consent to the service of any and all process in any such action or Proceeding by the mailing of copies of such process by certified mail to the parties and their counsel, at their respective addresses specified in Section 10.03. The parties further irrevocably and unconditionally agree that a final judgment in any such Proceeding (after exhaustion of all appeals or expiration of the time for appeal) shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law.

10.07 Counterparts. This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

10.08 Headings. The title of this Agreement, and the headings of the Sections, Articles and Schedules to this Agreement, are for reference purposes only and shall not be used in construing or interpreting this Agreement.

10.09 Entire Agreement; Amendment; Waiver. This Agreement and each Related Document delivered pursuant to the terms hereof, sets forth the entire agreement and understanding of the parties hereto in respect of the subject matter hereof and supersedes all prior agreements, promises, covenants, arrangements, representations or warranties, whether oral or written, including, without limitation, the Original Agreement, by any party hereto or any officer, director, employee or representative of any party hereto. No modification or waiver of any provision of this Agreement shall be valid unless it is in writing and signed by the party to be charged therewith. The waiver of breach of any term or condition of this Agreement shall not be deemed to constitute a waiver of any other breach of the same or any other term or condition.

10.10 Third Parties. Except as specifically set forth or referred to herein, nothing herein expressed or implied is intended or shall be construed to confer upon or give to any Person other than the parties hereto and their successors or assigns any rights or remedies under or by reason of this Agreement.

10.11 Publicity. From the date hereof through the Closing Date, no party hereto shall make any announcement of the transactions contemplated hereby without the prior written consent of the other parties hereto. From and after the Closing Date, except as otherwise required by law, the parties shall not make any announcement, issue any press release or disseminate information to the press or any third party regarding this Agreement or the transactions contemplated by this Agreement without the prior written consent of the other party.

10.12 No Presumption. The Seller and the Purchaser have each participated in the negotiation and drafting of this Agreement and have each been represented throughout to his or its satisfaction by legal counsel of its choosing. In the event any ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties hereto and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any of the provisions of this Agreement.

10.13 Amendment and Restatement. The parties hereto acknowledge that they have agreed to amend and restate the Original Agreement on the terms and conditions set forth in this Agreement. In accordance with Section 10.09 of the Original Agreement, this Agreement hereby supersedes and replaces the Original Agreement in its entirety.

[Remainder of Page Intentionally Left Blank; Signature Page Follows]

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered on the day and year first above written.

	PURCHASER:

	SECURECO, LLC

	By:	/s/ Alexander Harrington
	Name:	Alexander Harrington
	Title:	Chief Executive Officer

	SELLER:

	PALTALK, INC. f/k/a PEERSTREAM, INC.

	By:	/s/ Jason Katz
	Name:	Jason Katz
	Title:	Chief Executive Officer

[Signature Page to Amended and Restated Asset Purchase Agreement]

APPENDIX I

1.01 “Accounts Receivable” means any and all amounts and other obligations owed to the Seller by reason of a sale of a good or provision of a service.

1.02 “Acquired Assets” shall mean those assets, and rights of every kind and description of the Seller used or useful in the Business, other than the Excluded Assets, comprised of:

(a) all Tangible Property, including, without limitation, such property listed on Schedule 1.02(a) hereto;

(b) all prepaid expenses and deposits of the Seller with third parties relating to the Business, including, without limitation, those listed and described on Schedule 1.02(b) hereto;

(c) all Acquired Intellectual Property, including, without limitation, that listed and described on Schedule 1.02(c) hereto;

(d) all of the Seller’s right, title and interest in, to and under all Contracts related to the operation, use or maintenance of the Business or the Acquired Assets set forth on Schedule 1.02(d) hereto (the “Acquired Contracts”);

(e) except as otherwise required by law, all personnel records and files of the Seller or its Affiliates with respect to the Transferred Employees;

(f) all rights, Claims and causes of action under non-disclosure, non-compete, non-solicitation, non-piracy, non-accept and other restrictive covenant agreements with former and present employees, officers, directors, independent contractors, consultants and agents of the Seller, in each case, which run in favor of the Seller and relate to the Business or the Transferred Employees;

(g) to the extent not covered by clauses 1.02(a) through 1.02(h) above, all customer, lead, mailing, circulation, purchaser and all other lists, accounts, books and records of the Seller related to the Business, (including without limitation those relating to (i) the purchase of materials, supplies or services, and (ii) the production, marketing and sale of Products or Services, including all correspondence and other files), and all other existing records of the Seller related to the Business, and all computerized records, together with the related documentation used in connection therewith; all restrictive covenants prohibiting competition, solicitation of employees, vendors, suppliers, customers, agents, consultants and independent contractors, and the use and disclosure of confidential information and similar covenants which run in favor of the Seller;

(h) Governmental Authorizations related to the Business listed and described on Schedule 5.09 hereto;

(i) all goodwill of the Seller associated with the Acquired Assets and the Business; and

(j) all assets set forth on Schedule 1.02.

1.03 “Acquired Intellectual Property” shall mean the Owned Intellectual Property, the Licensed Intellectual Property and any other Intellectual Property owned, used or held by Seller and related to or used in the Business, including all of Seller’s right, title and interest in, to and under such Intellectual Property, including, without limitation, with respect to the Owned Intellectual Property and the Licensed Intellectual Property;

1.04 “Affiliate” shall mean an affiliate of an individual or entity as the term “affiliate” is defined in the rules and regulations promulgated under the Securities Act of 1933, as amended.

1.05 “Agreement” shall mean this Amended and Restated Asset Purchase Agreement and all schedules and exhibits hereto.

1.06 “Assignment and Assumption Agreement” shall have the meaning ascribed to such term in Section 3.02.

1.07 “Assumed Liabilities” shall have the meaning ascribed to such term in Section 2.03(a).

1.08 “Business” shall have the meaning ascribed to such term in the first WHEREAS clause of this Agreement.

1.09 “Calendar Quarter” means each of the consecutive three (3) month periods ending March 31, June 30, September 30, and December 31.

1.10 “Claim” shall have the meaning ascribed to such term in Section 8.02.

1.11 “Closing” shall have the meaning ascribed to such term in Section 3.01.

1.12 “Closing Date” shall have the meaning ascribed to such term in Section 3.01.

1.13 “Closing Payment” shall have the meaning ascribed to such term in Section 2.04(a)(i).

1.14 “Contract” shall mean, with respect to any Person, any agreement, contract, license, commitment, lease, or other arrangement, understanding, restriction or commitment of any kind, written or oral to which such Person’s properties, operations, business or assets are bound.

1.15 “Copyrights” shall mean any copyrights and works of authorship, whether or not copyrightable, and all registrations, applications for registration, and renewals of any of the foregoing.

1.16 “Damages” shall have the meaning ascribed to such term in Section 8.03(a).

1.17 “Employee Benefit Plan” shall mean any plan, program, policy, practice, contract, agreement, understanding or other arrangement providing for employment, engagement, compensation, severance, bonus, retention, incentive, termination, deferred compensation, equity or equity derivative, retirement, fringe benefits or other employee benefits or remuneration of any kind, whether written or unwritten or otherwise, funded or unfunded, which is or has been maintained, contributed to, or required to be contributed to, by Seller, directly or indirectly, for the benefit of any Offered Employee.

1.18 “Encumbrance” shall mean any charge, Claim, equitable interest, restriction of any kind, license, mortgage, pledge, lien, security or other third party right or interest of any kind whatsoever, conditional sales agreement, option, encumbrance or charge of any kind affecting real or personal property.

1.19 “Excluded Assets” shall have the meaning ascribed to such term in Section 2.02.

1.20 “Excluded Liabilities” shall have the meaning ascribed to such term in Section 2.03(b).

1.21 “Excluded Software” shall have the meaning ascribed to such term in Section 2.02.

1.22 “Fundamental Representations” shall have the meaning ascribed to such term in Section 8.01.

1.23 “Future Payment” shall have the meaning ascribed to such term in Section 2.04(a)(ii).

1.24 “Future Payment Date” shall have the meaning ascribed to such term in Section 2.04(a)(ii).

1.25 “Governmental Authority” means, with respect to any jurisdiction or combination of jurisdictions: (i) any U.S. federal, state, local, municipal, foreign or other government or governmental authority or subdivision of any nature (including any agency, branch, department, board, commission, court, tribunal or other entity exercising governmental or quasi-governmental powers); (ii) any multi-national organization or body; (iii) anybody exercising, or entitled to exercise, any administrative, executive, judicial, legislative, police, regulatory or taxing authority or power over such jurisdiction, with respect to its Persons, properties or otherwise; (iv) any mediator, arbitrator or arbitral body; and (v) any authorized official of any of the foregoing.

1.26 “Governmental Authorizations” shall mean all governmental approvals, authorizations, certifications, consents, variances, permissions, licenses, directives, and Permits to or from, or filings, notices, or recordings to or with United States federal, state, and local Governmental Authorities.

1.27 “Governmental Contracts” shall mean those Contracts or requests for proposed Contracts between the Seller and Governmental Authorities that are Acquired Contracts.

1.28 “Indemnification Notice” shall have the meaning ascribed to such term in Section 8.02.

1.29 “Indemnification Cap” shall have the meaning ascribed to such term in Section 8.05.

1.30 “Indemnified Party” shall have the meaning ascribed to such term in Section 8.02.

1.31 “Indemnitor” shall have the meaning ascribed to such term in Section 8.02.

1.32 “Intellectual Property” shall mean all rights in, arising out of, or associated with any of the following in any jurisdiction throughout the world: (i) Patents; (ii) Trademarks; (iii) Copyrights; (iv) mask works, and all registrations, applications for registration, and renewals thereof; (v) industrial designs, and all Patents, registrations, applications for registration, renewals thereof; (vi) Trade Secrets; (vii) Software; (viii) Programs, (ix) Program Documentation, (x) Web Sites and URLs and all content and data thereon or relating thereto, whether or not Copyrights; and (xi) all other intellectual or industrial property and proprietary rights.

1.33 “Intellectual Property Agreements” means all licenses, sublicenses, consent to use agreements, settlements, coexistence agreements, covenants not to sue, waivers, releases, permissions and other Contracts, whether written or oral, relating to any Intellectual Property that is used or held for use in the conduct of the Business as currently conducted or proposed to be conducted to which Seller is a party, beneficiary or otherwise bound or which otherwise affect the Acquired Intellectual Property.

1.34 “Intellectual Property Registration” shall mean an application (including provisional applications), certificate, filing, registration or other document seeking or confirming rights in Intellectual Property, filed with or issued, granted or recorded by any Governmental Authority in any jurisdiction anywhere in the world including any and all amendments to any of the foregoing.

1.35 “Harrington Employment Agreement” shall mean that certain Executive Employment Agreement by and between the Seller and Alex Harrington dated February 28, 2014, (i) as amended by (a) that certain First Amendment dated March 19, 2015, (b) that certain Second Amendment dated October 13, 2015, (c) that certain Third Amendment dated March 3, 2016, and (d) that certain Fourth Amendment dated October 7, 2016, and (ii) as modified by (a) that certain Waiver of Executive Employment Agreement Notice Provision dated November 13, 2019 and (b) that certain Waiver and Release of Claims dated December 13, 2019.

1.36 “Knowledge” means the actual or constructive knowledge of Jason Katz, after making due inquiry of Alexey P. Potakhov and Perry Scherer.

1.37 “Law” means any statute, law, ordinance, regulation, rule, code, order, constitution, treaty, common law, judgment, decree, other requirement or rule of law of any Governmental Authority.

1.38 “License” shall have the meaning ascribed to such term in Section 10.01.

1.39 “Licensed Intellectual Property” shall mean all Intellectual Property which the Seller uses or has the right to use pursuant to Third Party Licenses, including, but not limited to, such items listed on Schedule 1.35.

1.40 “Net Software Licensing Revenues” shall have the meaning ascribed to such term in Section 2.04(c).

1.41 “Object Code” shall mean the sequence of instructions in binary form that is generated from Source Code and that is intended to be executable by a computer after suitable processing and linking, but without further intervening steps of compilation or assembly..

1.42 “Offered Employee” shall have the meaning provided such term in Section 4.04(a).

1.43 “Owned Intellectual Property” shall mean all Intellectual Property (i) created or developed by employees, officers, directors, consultants or Representatives of the Seller, or

(ii) otherwise owned or held by Seller and related to or used in the Business, including, but not limited to, such items listed on Schedule 1.38.

1.44 “Owned Software” shall mean any Software owned by the Seller and used in the Business.

1.45 “Patents” shall mean all issued patents and patent applications (whether provisional or non-provisional), including divisionals, continuations, continuations-in-part, substitutions, reissues, reexaminations, extensions, or restorations of any of the foregoing, and other Governmental Authority-issued indicia of invention ownership (including certificates of invention, petty patents, and patent utility models).

1.46 “Permit” shall mean any license, franchise, permit, consent, order, approval, authorization or registration from, of or with a governmental entity.

1.47 “Person” shall mean an individual, partnership, corporation, limited liability company, association, joint stock company, trust, joint venture, unincorporated organization and governmental entity or any department, agency or political subdivision thereof.

1.48 “Proceeding” means any action, arbitration, mediation audit, hearing, investigation, litigation or suit (whether civil, criminal, administrative, investigative or informal) commenced, brought, conducted or heard by or before, or otherwise involving, any Governmental Authority.

1.49 “Products” shall mean any products marketed, sold or otherwise offered by the Seller in the operation of the Business.

1.50 “Programs” shall mean computer programs, operating systems, applications, and firmware, including all Software and compilations of data developed or acquired and owned by the Seller and at any time used or useful in the Business (including modifications or improvements to Licensed Intellectual Property) and including in each instance all Program Documentation with respect thereto.

1.51 “Program Documentation” shall mean Software Documentation for, and Trade Secrets relating to, any Program.

1.52 “Publicly Available Software” means (a) any Software that contains, or is derived in any manner (in whole or in part) from, any Software that is distributed as “free software” or “open source software” (e.g. Linux), or pursuant to “open source,” “copyleft” or similar licensing and distribution models; and (b) any Software that requires as a condition of use, modification, and/or distribution of such Software that such Software or other Software incorporated into, derived from, or distributed with such Software (i) be disclosed or distributed in source code form; (ii) be licensed for the purpose of making derivative works; or (iii) be redistributable at no or minimal charge. Publicly Available Software includes Software licensed or distributed pursuant to any of the following licenses or distribution models similar to any of the following: (A) GNU General Public License (GPL) or Lesser/Library GPL (LGPL), (B) the Artistic License (e.g. PERL), (C) the Mozilla Public License, (D) BSD licenses, (E) the Netscape Public License, (F) the Sun Community Source License (SCSL), the Sun Industry Source License (SISL), and (G) the Apache Software License.

1.53 “Purchase Price” shall have the meaning provided such term in Section 2.04(a).

1.54 “Related Documents” shall mean all other agreements, instruments, documents and certificates to be executed and delivered pursuant to this Agreement.

1.55 “Representatives” shall mean the attorneys, accountants or other agents or employees of a party to this Agreement.

1.56 “Royalty Payments” shall have the meaning ascribed to such term in Section 2.04(b).

1.57 “Sackowitz Employment Agreement” shall mean that certain Executive Employment Agreement by and between the Seller and Eric Sackowitz dated May 5, 2017, as amended by that certain First Amendment dated June 8, 2018, and as modified by (i) that certain Waiver of Executive Employment Agreement Notice Provision dated November 13, 2019, and

(ii) that certain Waiver of Executive Employment Severance Provision dated December 13, 2019.

1.58 “Services” shall mean services offered or provided to third parties by the Seller in respect of the Business, including, but not limited to, access to and use of the Products.

1.59 “Software” shall mean computer code of any type (whether Source Code or Object Code) in any programming or markup language, underlying any type of computer programming (whether application software, middleware or system software) including, but not limited to, applets, assemblers, compilers, design tools, and user interfaces.

1.60 “Software Documentation” shall mean all records, technical and descriptive materials, documentation and procedures (including computerized records, if any) existing and relating to the creation, acquisition, design, development, programming, enhancement, modification, translation or other manipulation, operation, use or maintenance of any Software or database, and all embodiments and descriptions of such Software in any medium, including hardcopy versions and, if applicable, relevant Source Code files and including, but not limited to, all computer tapes, disks and CD-ROMs containing embodiments or descriptions of such Software (including all prior versions).

1.61 “Source Code” shall mean the human readable programming statements for Software that are created by a programmer with a text editor or visual programming tool and that are used to generate the Object Code. Source Code also includes Software Documentation (such as logic diagrams and flow charts, programmer comments and annotations, help text, data, data structures and instructions) where such Software Documentation is stored in or associated electronically with Source Code files.

1.62 “Tax” shall have the meaning ascribed to such term in Section 5.10.

1.63 “Tangible Property” shall mean all the machinery, furniture, fixtures, equipment and other tangible personal property related to the Business.

1.64 “Third Party License” shall mean all licenses, agreements, obligations or other commitments under which a Person has granted the Seller a right to use Intellectual Property but retains one or more rights to use such Intellectual Property.

1.65 “Trade Secrets” shall mean means trade secrets, know-how, inventions (whether or not patentable), discoveries, improvements, technology, business and technical information, databases, data compilations and collections, tools, methods, processes, techniques, and other confidential and proprietary information and all rights therein,

1.66 “Trademarks” shall mean trademarks, service marks, brands, certification marks, logos, trade dress, trade names, and other similar indicia of source or origin, together with the goodwill connected with the use of and symbolized by, and all registrations, applications for registration, and renewals of, any of the foregoing.

1.67 “Transferred Employee” shall have the meaning ascribed to such term in Section 4.04(a).

1.68 “Unassignable Government Contracts” shall have the meaning ascribed to such term in Section 4.03.

1.69 “URL” shall mean a uniform resource locator listed on Schedule 1.02(c).

1.70 “Web Sites” shall mean the content available at a URL.

EXHIBIT A

Purchase Price Allocation Schedule

The Purchase Price (as determined for U.S. federal income Tax purposes, which includes, without limitation, the amount of the Assumed Liabilities (to the extent required by tax law)) shall be allocated among the Acquired Assets in accordance with Section 1060 of the Code and the principles set forth below:

1. First, to any cash or cash equivalents classified as a “Class I” or “Class II” asset, an amount equal to the amount of cash and cash equivalents;

2. Next, to debt instruments (including accounts receivable) and any other asset classified as a “Class III asset” within the meaning of Treasury Regulation Section 1.338-6(b), an amount equal to its fair market value;

3. Next, to inventory and any other asset classified as a “Class IV asset” within the meaning of Treasury Regulation Section 1.338-6(b), an amount equal to its fair market value;

4. Next, to equipment, any other tangible depreciable asset and any other asset classified as a “Class V asset” within the meaning of Treasury Regulation Section 1.338-6(b), in the aggregate, an amount equal to its fair market value;

5. Finally, any remaining amounts not otherwise allocated above, to intangible assets classified as “Class VI assets” and goodwill and going concern value classified as a “Class VII asset” within the meaning of Treasury Regulations Section 1.338-6(b).

Exhibit 31.1

CERTIFICATION PURSUANT TO EXCHANGE ACT RULE 13a-14(a)/15d-14(a)

AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Jason Katz, certify that:

I have reviewed this Quarterly Report on Form 10-Q of Paltalk, Inc.;

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 6, 2020

By:

/s/ Jason Katz

Jason Katz

Chief Executive Officer

(Principal Executive Officer)

Exhibit 31.2

CERTIFICATION PURSUANT TO EXCHANGE ACT RULE 13a-14(a)/15d-14(a)

AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Kara Jenny, certify that:

I have reviewed this Quarterly Report on Form 10-Q of Paltalk, Inc.;

(a)

(b)

(c)

(d)

(a)

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 6, 2020

By:

/s/ Kara Jenny

Kara Jenny

Chief Financial Officer

(Principal Financial and Accounting Officer)

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906

OF THE SARBANES-OXLEY ACT OF 2002

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code), each of the undersigned officers of Paltalk, Inc. (the “Company”), does hereby certify, to such officer’s knowledge, that:

The Quarterly Report on Form 10-Q for the quarter ended June 30, 2020 (the “Form 10-Q”) of the Company fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934 and the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company as of, and for, the periods presented in the Form 10-Q.

Date: August 6, 2020

By:

/s/ Jason Katz

Jason Katz

Chief Executive Officer

(Principal Executive Officer)

Date: August 6, 2020

By:

/s/ Kara Jenny

Kara Jenny

Chief Financial Officer

(Principal Financial and Accounting Officer)

The foregoing certification is being furnished as an exhibit to the Form 10-Q pursuant to Item 601(b)(32) of Regulation S-K and Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code) and, accordingly, is not being filed as part of the Form 10-Q for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.