Paltalk(PALT) - 2022 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements Unaudited Q3 and nine-month financial statements for 2022 reveal a net loss, reduced cash, and substantial investing cash outflow Condensed Consolidated Balance Sheets The balance sheet as of September 30, 2022, shows decreased total assets and equity, with increased liabilities, primarily from reduced cash Condensed Consolidated Balance Sheet Highlights (as of Sep 30, 2022 vs. Dec 31, 2021) | Balance Sheet Item | Sep 30, 2022 (Unaudited, USD) | Dec 31, 2021 (USD) | | :--- | :--- | :--- | | Cash and cash equivalents | $15,498,563 | $21,636,860 | | Total current assets | $15,926,931 | $22,029,566 | | Intangible assets, net | $3,800,873 | $196,543 | | Total assets | $26,251,705 | $28,882,648 | | Total current liabilities | $3,471,092 | $3,672,875 | | Total liabilities | $4,420,117 | $3,832,057 | | Total stockholders' equity | $21,831,588 | $25,050,591 | - The significant increase in net intangible assets from $196,543 to $3,800,873 is primarily due to the acquisition of ManyCam assets in June 2022[15][26] Condensed Consolidated Statements of Operations Q3 2022 net loss was $1.05 million, and the nine-month net loss was $2.92 million, driven by lower revenues and higher operating expenses Statement of Operations Summary (Unaudited) | Metric | Q3 2022 (USD) | Q3 2021 (USD) | Nine Months 2022 (USD) | Nine Months 2021 (USD) | | :--- | :--- | :--- | :--- | :--- | | Total revenues | $2,623,467 | $3,377,647 | $8,194,636 | $10,165,452 | | (Loss) income from operations | ($1,060,403) | ($456,542) | ($2,857,155) | $529,331 | | Net (loss) income | ($1,050,365) | ($409,036) | ($2,918,016) | $1,329,377 | | Diluted EPS | ($0.11) | ($0.05) | ($0.30) | $0.18 | Condensed Consolidated Statements of Cash Flows Net cash decreased by $6.14 million for the nine months ended September 30, 2022, due to operating, investing (ManyCam), and financing outflows Cash Flow Summary for the Nine Months Ended September 30 (Unaudited) | Cash Flow Activity | 2022 (USD) | 2021 (USD) | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | ($2,623,682) | $1,090,055 | | Net cash (used in) provided by investing activities | ($2,942,279) | $806,618 | | Net cash (used in) provided by financing activities | ($572,336) | $3,230,739 | | Net (decrease) increase in cash | ($6,138,297) | $5,127,412 | - The primary use of cash in investing activities was the $2.7 million acquisition of ManyCam assets[22] - Financing activities in 2022 were dominated by the purchase of treasury stock ($572,336), contrasting with 2021 which saw $3.2 million in proceeds from the issuance of common stock[22] Notes to Condensed Consolidated Financial Statements The notes detail the ManyCam acquisition, a stock repurchase plan, and a patent infringement lawsuit against Cisco - On June 9, 2022, the Company acquired the assets of ManyCam for $2.7 million in cash, with a potential earn-out payment of up to $600,000 based on performance thresholds[26][27] - Technology service revenue related to the Props platform with YouNow, which was $451,755 in the first nine months of 2021, ceased as the agreement was terminated in late 2021[53][55][57] - On March 21, 2022, the Board approved a stock repurchase plan for up to $1,750,000. As of September 30, 2022, 317,089 shares had been repurchased under this plan[75] - The company filed a patent infringement lawsuit against Cisco in July 2021, alleging infringement of U.S. Patent No. 6,683,858. A trial is scheduled for Q1 2023, but Cisco has filed a motion to stay the lawsuit pending a USPTO reexamination of the patent[98][99] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q3 2022 revenue decline, a shift to operating loss, and a strong cash position despite significant acquisition and repurchase outflows Overview and Recent Developments The company acquired ManyCam, repurchased shares, engaged Roth Capital for acquisitions, and noted macro-economic impacts - Acquired the core assets of ManyCam, a live streaming software and virtual camera, on June 9, 2022[111][122] - Repurchased over 317,000 shares of common stock for an aggregate amount of $572,000 under a stock repurchase plan[122] - Engaged Roth Capital Partners as a financial advisor to explore strategic initiatives, particularly buy-side acquisitions[122] - Management acknowledges that macro-economic factors, including inflation and the strength of the US dollar, may negatively impact users' discretionary spending and the non-US customer base[117] Key Metrics Key non-GAAP metrics, Subscription Bookings and Adjusted EBITDA, significantly declined in Q3 and nine months 2022, with Adjusted EBITDA turning negative Key Performance Indicators (Unaudited) | Metric | Q3 2022 (USD) | Q3 2021 (USD) | Nine Months 2022 (USD) | Nine Months 2021 (USD) | | :--- | :--- | :--- | :--- | :--- | | Subscription bookings | $2,759,762 | $2,996,414 | $8,091,183 | $9,210,330 | | Net cash (used in) provided by operating activities | ($979,748) | $478,067 | ($2,623,682) | $1,090,055 | | Adjusted EBITDA | ($780,550) | $300,603 | ($2,173,979) | $1,504,429 | - Adjusted EBITDA is a non-GAAP measure defined as net income excluding interest, taxes, depreciation, amortization, stock-based compensation, and certain other non-recurring items[143] Results of Operations Total revenue decreased in Q3 2022 and for nine months due to lower subscription and ceased technology service revenue, while expenses increased Revenue Comparison for Q3 2022 vs. Q3 2021 | Revenue Source | Q3 2022 (USD) | Q3 2021 (USD) | $ Change (USD) | % Change | | :--- | :--- | :--- | :--- | :--- | | Subscription revenue | $2,538,764 | $3,148,822 | ($610,058) | (19.4)% | | Advertising revenue | $84,703 | $151,318 | ($66,615) | (44.0)% | | Technology service revenue | $0 | $77,507 | ($77,507) | (100.0)% | | Total revenues | $2,623,467 | $3,377,647 | ($754,180) | (22.3)% | Revenue Comparison for Nine Months 2022 vs. 2021 | Revenue Source | Nine Months 2022 (USD) | Nine Months 2021 (USD) | $ Change (USD) | % Change | | :--- | :--- | :--- | :--- | :--- | | Subscription revenue | $7,945,809 | $9,410,096 | ($1,464,287) | (15.6)% | | Advertising revenue | $248,827 | $303,601 | ($54,774) | (18.0)% | | Technology service revenue | $0 | $451,755 | ($451,755) | (100.0)% | | Total revenues | $8,194,636 | $10,165,452 | ($1,970,816) | (19.4)% | - Sales and marketing expenses for the nine months ended Sep 30, 2022 increased by 51.4% YoY to $1.3 million, primarily due to a $418,000 increase in marketing and user acquisition expenses[169][171] - General and administrative expenses for the nine-month period increased 50.7% YoY to $3.2 million, driven by higher stock-based compensation, professional fees, insurance, and amortization expense[169][173] Liquidity and Capital Resources The company held $15.5 million in cash as of September 30, 2022, with adequate liquidity despite a $6.1 million cash decrease from operations, ManyCam acquisition, and repurchases - The company's primary source of liquidity is cash on hand, which stood at $15,498,563 as of September 30, 2022[180] - Net cash used in operating activities was $2.6 million for the first nine months of 2022, a significant shift from $1.1 million in cash provided by operations in the same period of 2021, mainly due to lower subscription revenue and higher operating expenses[182] - Net cash used in investing activities was $2.9 million, primarily for the ManyCam Acquisition, compared to $0.8 million provided by investing activities in the prior year period[183] Quantitative and Qualitative Disclosures About Market Risk This item is not applicable as the company is a smaller reporting company - The company has indicated that this section is not applicable[188] Controls and Procedures Management concluded disclosure controls were effective as of September 30, 2022, with no material changes in internal control over financial reporting - Management concluded that as of September 30, 2022, the company's disclosure controls and procedures were effective at a reasonable assurance level[190] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls[191] PART II. OTHER INFORMATION Legal Proceedings The company is involved in a patent infringement lawsuit against Cisco, with a Q1 2023 trial pending a USPTO reexamination motion - In July 2021, a subsidiary filed a patent infringement lawsuit against Cisco, alleging that Webex products infringe on U.S. Patent No. 6,683,858[194] - A trial is scheduled for Q1 2023. However, on September 16, 2022, Cisco filed a motion to stay the lawsuit pending a reexamination of the patent by the U.S. Patent Office[194][195] Risk Factors No material changes to the Risk Factors previously disclosed in the Form 10-K for the year ended December 31, 2021 - No material changes to the Risk Factors disclosed in the Form 10-K were reported[196] Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities were reported, but the company repurchased 207,089 shares for $0.36 million in Q3 2022 - There were no sales of unregistered securities during the quarter ended September 30, 2022[197] Issuer Repurchases of Common Stock (Q3 2022) | Period | Total Number of Shares Purchased | Average Price Paid Per Share (USD) | | :--- | :--- | :--- | | July 2022 | — | $— | | August 2022 | 181,470 | $1.74 | | September 2022 | 25,619 | $1.67 | | Total | 207,089 | $1.73 | Defaults Upon Senior Securities No defaults upon senior securities were reported - The company reported no defaults upon senior securities[199] Mine Safety Disclosures No mine safety disclosures were reported - The company reported no mine safety disclosures[200] Other Information No other information was reported - The company reported no other information[201][202] Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO/CFO certifications and Inline XBRL data files