Paltalk(PALT) - 2023 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements This section presents the unaudited condensed consolidated financial statements for Paltalk, Inc. as of September 30, 2023, and for the three and nine-month periods then ended Condensed Consolidated Balance Sheets The balance sheet as of September 30, 2023, shows a decrease in total assets to $24.1 million from $25.4 million at year-end 2022, primarily driven by a reduction in cash and cash equivalents, with total liabilities and stockholders' equity also seeing declines Condensed Consolidated Balance Sheet Highlights (Unaudited) | Metric | September 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Cash and cash equivalents | $13,667,000 | $14,739,933 | | Total current assets | $14,747,081 | $15,405,429 | | Total assets | $24,095,056 | $25,431,608 | | Total current liabilities | $3,023,056 | $3,663,458 | | Total liabilities | $3,742,581 | $4,457,366 | | Total stockholders' equity | $20,352,475 | $20,974,242 | Condensed Consolidated Statements of Operations For the third quarter of 2023, total revenues increased to $2.77 million, while the net loss significantly narrowed to $181,576 from over $1.05 million year-over-year, with similar trends for the nine-month period Q3 2023 vs Q3 2022 Statement of Operations (Unaudited) | Metric | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | | :--- | :--- | :--- | | Total revenues | $2,767,939 | $2,623,467 | | Loss from operations | $(389,416) | $(1,060,403) | | Net loss | $(181,576) | $(1,050,365) | | Net loss per share (Basic & Diluted) | $(0.02) | $(0.11) | Nine Months 2023 vs 2022 Statement of Operations (Unaudited) | Metric | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | | Total revenues | $8,287,958 | $8,194,636 | | Loss from operations | $(1,576,133) | $(2,857,155) | | Net loss | $(784,245) | $(2,918,016) | | Net loss per share (Basic & Diluted) | $(0.09) | $(0.30) | Condensed Consolidated Statements of Cash Flows Net cash used in operating activities for the nine months ended September 30, 2023, improved to $980,720, with overall cash and cash equivalents decreasing by $1.07 million during the period Cash Flow Summary for Nine Months Ended Sep 30 (Unaudited) | Cash Flow Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | $(980,720) | $(2,623,682) | | Net cash used in investing activities | $(85,000) | $(2,942,279) | | Net cash used in financing activities | $(7,213) | $(572,336) | | Net decrease in cash | $(1,072,933) | $(6,138,297) | Notes to Condensed Consolidated Financial Statements The notes detail the company's multimedia social applications, accounting for the Employee Retention Tax Credit, revenue recognition, intangible assets, stock-based compensation, and an ongoing patent infringement lawsuit against Cisco - The company's product portfolio includes Paltalk, Camfrog, Tinychat, ManyCam (a live streaming software), and Vumber (a telecommunications service provider)[27] - The company applied for and recognized an Employee Retention Tax Credit (ERTC) of $343,045, net of costs, recorded as other income for the nine months ended September 30, 2023[34] - Virtual gift revenue, included in subscription revenue, was $1.11 million for Q3 2023, up from $0.97 million in Q3 2022[45] - The company is involved in a patent infringement lawsuit against Cisco, with a trial expected to be held in May 2024[70][71] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial performance, highlighting a 5.5% increase in total revenue and an 82.7% decrease in net loss for Q3 2023, attributing improvement to increased virtual gift revenue, cost reductions, and higher interest income, while maintaining a strong liquidity position - Key operational highlights for Q3 2023 include a 5.5% increase in total revenue, an 82.7% decrease in net loss, and achieving positive cash flow from operations[85] - Near-term business objectives include leveraging the ManyCam integration, optimizing marketing spend, enhancing live video chat applications, and exploring strategic M&A opportunities[85][90] Key Performance Metrics (Unaudited) | Metric | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $16,058 | $(979,748) | | Net loss | $(181,576) | $(1,050,365) | | Adjusted EBITDA | $(126,453) | $(780,550) | Results of Operations A detailed comparison of the three and nine months ended September 30, 2023, versus the same periods in 2022, shows Q3 revenue rose 5.5% to $2.77 million, driven by subscription and virtual gift sales, while total costs and expenses decreased by 14.3% Q3 2023 vs Q3 2022 Revenue Breakdown (Unaudited) | Revenue Type | Q3 2023 | Q3 2022 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Subscription revenue | $2,673,333 | $2,538,764 | $134,569 | 5.3% | | Advertising revenue | $94,606 | $84,703 | $9,903 | 11.7% | | Total revenues | $2,767,939 | $2,623,467 | $144,472 | 5.5% | Q3 2023 vs Q3 2022 Expense Breakdown (Unaudited) | Expense Category | Q3 2023 | Q3 2022 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Cost of revenue | $826,662 | $775,330 | $51,332 | 6.6% | | Sales and marketing | $210,573 | $370,772 | $(160,199) | (43.2)% | | Product development | $1,193,430 | $1,485,479 | $(292,049) | (19.7)% | | General and administrative | $926,690 | $1,052,289 | $(125,599) | (11.9)% | | Total costs and expenses | $3,157,355 | $3,683,870 | $(526,515) | (14.3)% | Liquidity and Capital Resources The company's primary liquidity source is its $13.7 million cash on hand as of September 30, 2023, which management believes is sufficient for the next year, with net cash used in operating activities significantly improving - As of September 30, 2023, the company had $13.7 million in cash and cash equivalents[127] - Net cash used in operating activities for the nine months ended September 30, 2023, improved to $(980,720) from $(2,623,682) in the same period of 2022[127][129] Quantitative and Qualitative Disclosures About Market Risk This section is noted as not applicable for the company, indicating it is a smaller reporting company and not required to provide this information - The company has indicated that this disclosure is not applicable[135] Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of September 30, 2023, with no material changes in internal control over financial reporting during the quarter - Management concluded that disclosure controls and procedures were effective as of September 30, 2023[137] - No material changes were identified in the company's internal control over financial reporting during the quarter[138] PART II. OTHER INFORMATION Legal Proceedings This section details the ongoing patent infringement lawsuit filed by a wholly-owned subsidiary of the company against Cisco Systems, Inc., with a trial expected in May 2024 after Cisco's motion for summary judgment was denied - The company's subsidiary, Paltalk Holdings, Inc., is pursuing a patent infringement lawsuit against Cisco[141] - The court denied Cisco's motion for summary judgment, and a trial is anticipated for May 2024[142] Risk Factors The company states that there were no material changes to the risk factors previously disclosed in its Annual Report on Form 10-K for the year ended December 31, 2022 - There were no material changes to the Risk Factors disclosed in the company's Form 10-K[143] Unregistered Sales of Equity Securities and Use of Proceeds The company reports no sales of unregistered securities or repurchases of common stock during the third quarter of 2023 - No unregistered securities were sold during the quarter ended September 30, 2023[144] - The company did not repurchase any shares of its common stock during the third quarter of 2023[145] Defaults Upon Senior Securities The company reports that there were no defaults upon senior securities - None[146] Mine Safety Disclosures The company reports that there are no mine safety disclosures - None[147] Other Information The company reports that there is no other information to disclose for this period - None[148] Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications by the CEO and CFO pursuant to the Sarbanes-Oxley Act of 2002 and Inline XBRL documents - Exhibits filed include CEO and CFO certifications (31.1, 31.2, 32.1) and Inline XBRL data files[150]