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 endedJune 30, 2022 and 2021, (ii) the consolidated financial statements and notes thereto for the year endedDecember 31, 2021 included in our Annual Report on Form 10-K (the "Form 10-K") filed with theSecurities and Exchange Commission (the "SEC") onMarch 23, 2022 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 ofDecember 31, 2021 , 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 communications software innovator that powers multimedia social applications. We operate a network of consumer applications that we believe create a unique social media enterprise where users can meet, see, chat, broadcast and message in real time in a secure environment with others in our network. Our consumer applications generate revenue principally from subscription fees and advertising arrangements.
Our product portfolio includesPaltalk , Camfrog and Tinychat, which together host and serve a large collection of video-based communities. Our other products include ManyCam and Vumber. ManyCam is a live streaming software and virtual camera that allows users to deliver professional live videos on streaming platforms, video conferencing apps and distance learning tools. Vumber is a telecommunications services provider that enables users to communicate privately by having multiple phone numbers with any area code through which calls can be forwarded to a user's existing telephone number. We have an over 20-year history of technology innovation and hold 14 patents. We believe that the scale of our user base presents a competitive advantage in the video social networking industry and provides growth opportunities to advance our 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, online card and board games and provide robust user monetization tools. 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 also includes the acquisition of, or investment in, technologies, solutions or businesses that complement our business.
Our strategy is to approach these opportunities in a measured way, being mindful of our resources and evaluating factors such as potential revenue, time to market and amount of capital needed to invest in the opportunity.
15 Recent Developments ManyCam Asset Acquisition OnJune 9, 2022 (the "Effective Date"), we entered into a Securities Purchase Agreement (the "Securities Purchase Agreement") by and among the Company, ManyCam ULC, an unlimited liability company incorporated under the laws of the Province ofAlberta and a wholly owned subsidiary of the Company (the "Purchaser"),Visicom Media Inc. , a Canadian corporation (the "Visicom"), and 2434936 Alberta ULC, an unlimited liability company incorporated under the laws of the Province ofAlberta ("Target NewCo"), pursuant to which the Purchaser purchased, effective as of the Effective Date, all of the issued and outstanding shares of Target NewCo (the "ManyCam Acquisition"). Prior to the ManyCam Acquisition, Target NewCo held all assets related to, or used by Visicom in connection with, the business of developing and distributing virtual webcam driver software, including virtual backgrounds and/or "masks" or other camera effects (other than the Excluded Contracts (as defined in the Securities Purchase Agreement)), whether tangible or intangible, including, but not limited to, Target NewCo's ManyCam software ("ManyCam") and related source code, customer lists, customer relationships and all associated customer information, contracts with contractors and suppliers, brand names, trade secrets, trademarks, trade names, designs, copyrights, websites, all URLs, goodwill and intellectual property associated with each of the foregoing (collectively,
the "Conveyed Assets"). The Purchaser acquired the Conveyed Assets for a cash purchase price of$2.7 million (the "Cash Consideration"). In addition to the Cash Consideration, Visicom is entitled to receive an additional payment of up to$600,000 (the "Earn-Out Payment") based on the sales of the ManyCam software less chargebacks and refunds ("Gross Sales") in the six-month period following the Closing (the "Earn-Out Period") as follows: (i) if the Gross Sales during the Earn-Out Period are greater than$800,000 , the Earn-Out Payment shall be$600,000 , (ii) if the Gross Sales during the Earn-Out Period are greater than$700,000 but less than$800,000 , the Earn-Out Payment shall be$300,000 , (iii) if the Gross Sales during the Earn-Out Period are greater than$600,000 but less than$700,000 , the Earn-Out Payment shall be$150,000 and (iv) if the Gross Sales during the Earn-Out Period do not exceed$600,000 , then the Seller will not be paid any portion of the Earn-Out Payment.
As part of the accounting for the ManyCam assets, the Company provisionally
recorded a deferred tax liability of
OnJune 30, 2022 , we entered into a License Agreement with Visicom (the "License Agreement"), pursuant to which we agreed to distribute, at the discretion and direction of Visicom, a specified number of ManyCam software updates to certain license holders to whom Visicom has previously granted a "lifetime" license to ManyCam software. As consideration for distributing the software updates, Visicom paid us an initial upfront nonrefundable payment of$65,000 . The License Agreement provides that Visicom may purchase additional licenses at prices specified therein. Other than providing a one-time, limited license to Visicom for the distribution of ManyCam software updates pursuant to the terms of the License Agreement, we do not have any obligation to provide support or service to the licensee end users.
Macro-Economic Factors and COVID-19 Update
Our results of operations have and may continue to be negatively impacted by the uncertainty regarding macro-economic factors, including the timing of any economic recession and/or recovery and the overall inflationary environment
and COVID-19. The global spread of the COVID-19 pandemic and the various attempts to contain it have created significant volatility, uncertainty and economic disruption. COVID-19 continues to have an unpredictable and unprecedented impact on theU.S. economy as federal, state and local governments react to this public health crisis with travel restrictions and potential quarantines. Although our core multimedia social applications were able to support the increased demand we experienced from the second quarter of 2020 through the year endedDecember 31, 2021 , the extent of the future impact of the COVID-19 pandemic on our business is highly uncertain and difficult to predict. Adverse economic and market conditions as a result of COVID-19 as well as the lifting of COVID-19 restrictions could also affect the demand for our applications and the ability of our users to satisfy their obligations to us. If the pandemic continues to cause significant negative impacts to economic conditions, our results of operations, financial condition and liquidity could be materially and adversely impacted. OnApril 13, 2020 , to help ensure adequate liquidity in light of the uncertainties posed by the COVID-19 pandemic, we applied for a loan under theSmall Business Administration ("SBA") Paycheck Protection Program ("PPP") under the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"), and onMay 3, 2020 , we entered into a promissory note with an aggregate principal amount of$506,500 (the "Note") in favor ofCitibank, N.A ., as lender (the "Lender"). OnJanuary 13, 2021 , the Note was fully forgiven by the SBA and the Lender in compliance with the provisions of the CARES Act. We do not expect to incur additional indebtedness under the CARES Act. We continue 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 to select countries. 16
Operational Highlights and Objectives
During the three and six months ended
? acquired the core assets of ManyCam, a live streaming software and virtual
camera that allows users to deliver professional live videos on streaming
platforms, video conferencing apps and distance learning tools; ? released the Windows version of ManyCam 8.0, an upgrade to the newly acquired asset;
? engaged
investment banker to explore strategic initiatives focused on buy-side
acquisitions;
? selected two marketing companies, to lead our increased marketing efforts
for ourPaltalk and Camfrog applications; and
? partnered with Hive Automated Content Moderation Solutions to roll out new
content moderation software for increased user experience.
For the near term, our business objectives include:
? Adjusting our spend to better align with overall macro-economic conditions
and investing in a measured way that ensures responsible cash management;
? working with Roth to continue to explore strategic opportunities, including, but not limited to, potential mergers or acquisitions of other assets or entities that are synergistic to our business;
? optimizing our acquisition of the ManyCam software to not only maximize
subscription revenue but to integrate and cross-sell with our existing
customer base and explore business-to-business sales opportunities; ? continuing to implement several enhancements to our live video chat applications as well as the integration of card and board games and other
features focused on user retention and monetization, which collectively
are intended to increase user engagement and revenue opportunities; ? continuing to develop our consumer application platform strategy by
seeking potential partnerships with large third-party communities to whom
we could promote a co-branded version of our video chat products and
potentially share in the incremental revenues generated by these partner
communities; 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 in future periods will continue to be generated from our core video chat products. We also have historically generated 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-, twelve- and twenty-four-month terms, which continue to vary as we continue to test and optimize length and pricing. Longer-term plans (those with durations longer than one month) are generally available at discounted monthly rates. Levels of membership benefits are offered in tiers, with the least membership benefits in the lowest paid tier and the most membership benefits in the highest paid tier. Our membership tiers are "Plus," "Extreme," "VIP" and "Prime" forPaltalk 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. 17 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 was historically generated under service and partnership agreements that we negotiated with third parties, which included development, integration, engineering, licensing or other services that we provided.
In 2021, we recorded technology service revenue in connection with our agreement to serve as a launch partner withOpen Props, Inc. (formerlyYouNow, Inc. , and referred to herein as "YouNow") and to integrate YouNow's props infrastructure (the "Props platform") into our Camfrog andPaltalk applications (as amended, the "YouNow Agreement"). Pursuant to the terms of the YouNow Agreement, once the integration of Props tokens into ourPaltalk and Camfrog applications was completed, we began receiving Props tokens for providing a validator service and for allowing users to participate in the loyalty platform. The loyalty platform was intended to drive engagement and incentivize users financially by providing users with the ability to earn Props tokens while using thePaltalk and Camfrog applications. The net revenue earned was recorded under "technology service revenue" in the condensed consolidated statements of operations. The total net revenue value was recognized as earned.
We determined the fair value of the Props tokens using observable daily quoted market prices on multiple international exchanges, as recorded on CoinmarketCap.
InAugust 2021 , we received notice from YouNow that it was terminating the YouNow Agreement, and that it would no longer support the Props platform past the end of calendar year 2021. The YouNow Agreement was terminated effective onNovember 23, 2021 . We expect that the majority of our future technology service revenue, if any, will result from opportunistic collaborations with third parties, however, any such collaborations are not a primary focus for the Company. 18 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. Cost of revenue also includes compensation and other employee-related costs for technical personnel, consultants 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 and consultants 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 and consultant-related costs that are not capitalized for personnel engaged in the design, testing and enhancement of service offerings as well as amortization of capitalized website development costs.
General and administrative expense
General and administrative expense consists primarily of compensation (including non-cash 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 and cost of insurance. General and administrative expense also includes depreciation of property and equipment and amortization of intangible assets.
Impairment loss on digital tokens
Impairment loss on digital tokens results from the daily assessment of the Props tokens' quoted market prices, as reflected on CoinmarketCap, and adjusting the recorded carrying amount to the amount equal to the lowest quoted market price during the period in which the Props tokens are held. During the three and six months endedJune 30, 2022 andJune 30, 2021 , we recorded a non-cash impairment charge in the amount of$7,262 and$184,737 , respectively, which is reported in our accompanying condensed consolidated statements of operations, as a result of recent decline in the quoted market prices below the market price of their
acquisition. Key Metrics Our management relies on certain non-GAAP and/or unaudited performance indicators to manage and evaluate our business. The key performance indicators set forth below help us evaluate growth trends, establish budgets, measure the effectiveness of our advertising and marketing efforts and assess operational efficiencies. We also discuss net cash (used in) provided by operating activities under the "Results of Operations" and "Liquidity and Capital Resources" sections below. Subscription bookings and Adjusted EBITDA are discussed below. Three Months Ended Six Months Ended June 30, June 30, 2022 2021 2022 2021 Subscription bookings$ 2,554,702 $ 3,109,478 $ 5,331,401 $ 6,213,916 Net cash (used in) provided by operating activities$ (410,980 ) $ 515,933 $ (1,643,934 ) $ 611,988 Net (loss) income$ (1,128,706 ) $ 821,684 $ (1,867,651 ) $ 1,738,413 Adjusted EBITDA$ (908,999 ) $ 668,649 $ (1,393,430 ) $ 1,203,825 Adjusted EBITDA as percentage of total revenues (34.4 )% 19.6 % (25.0 )% 17.7 % 19 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 generally accepted accounting principles inthe United States ("GAAP"). Adjusted EBITDA
Adjusted EBITDA is a non-GAAP financial measure. Adjusted EBITDA is defined as net (loss) income adjusted to exclude interest expense (income), net, provision for income taxes, gain on extinguishment of term debt, depreciation and amortization expense, other expense, net, stock-based compensation expense, realized gain from sale of digital tokens and impairment loss on digital tokens. 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.
Limitations of Adjusted EBITDA
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 that 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; interest income (expense), net; other income, net; the potentially dilutive impact of stock-based compensation; gain on the extinguishment of term debt; and the provision for income taxes. Other companies, including companies in our industry, may calculate Adjusted EBITDA differently, which reduces its usefulness as a comparative measure. 20
Because of these limitations, you should consider Adjusted EBITDA alongside other financial performance measures, including various metrics of cash flows, net (loss) income and our other GAAP results. The following table presents a reconciliation of net (loss) 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, 2022 2021 2022 2021 Reconciliation of net (loss) income to Adjusted EBITDA: Net (loss) income$ (1,128,706 ) $ 821,684 $ (1,867,651 ) $ 1,738,413 Interest expense (income), net 1,595 420 3,457 (2,047 ) Other expense, net 38,772 - 46,658 - Gain on extinguishment of term debt - - - (506,500 ) Provision for income taxes 4,753 2,200 20,784 3,300 Realized gain from sale of digital tokens - (247,293 ) - (247,293 ) Impairment loss on digital tokens 7,262 184,737 7,262 184,737 Depreciation and amortization expense 108,176 99,243 184,440 194,189 Stock-based compensation expense 59,149 (192,342 )
211,620 (160,974 ) Adjusted EBITDA$ (908,999 ) $ 668,649 $ (1,393,430 ) $ 1,203,825 Results of Operations
The following table sets forth condensed consolidated statements of operations data for each of the periods indicated as a percentage of total revenues:
Three Months Ended Six Months Ended June 30, June 30, 2022 2021 2022 2021 Total revenue 100.0 % 100.0 % 100.0 % 100.0 % Costs and expenses: Cost of revenue 25.0 % 18.5 % 23.6 % 18.8 % Sales and marketing expense 18.3 % 7.5 % 16.1 % 7.6 % Product development expense 57.5 % 38.0 % 54.8 % 38.2 %
General and administrative expense 39.8 % 13.7 % 37.7 % 18.1 % Impairment loss on digital tokens 0.3 % 5.4 % 0.1 % 2.7 % Total costs and expenses 140.9 % 83.1 % 132.3 % 85.4 % (Loss) income from operations (40.9 )% 16.9 % (32.3 )% 14.6 % Interest (expense) income, net (0.1 )% (0.0 )% (0.1 )% 0.0 % Gain on extinguishment of term debt - % - % - % 7.5 % Realized gain from sale of digital tokens - % 7.2 % - % 3.6 % Other expense, net (1.5 )% - % (0.7 )% - % (Loss) income from operations before provision for income taxes (42.5 )% 24.1 % (33.1 )% 25.7 % Provision for income taxes (0.2 )% (0.1 )% (0.4 )% (0.0 )% Net (loss) income (42.7 )% 24.0 %
(33.5 )% 25.7 % 21
Three Months Ended
Revenue Total revenue decreased by 22.6% to$2,644,468 for the three months endedJune 30, 2022 from$3,415,803 for the three months endedJune 30, 2021 . This decrease was primarily driven by a decrease in subscription revenue and a decrease in technology service revenue driven by the termination of the YouNow Agreement. The following table sets forth our subscription revenue, advertising revenue, technology service revenue and total revenue for the three months endedJune 30, 2022 andJune 30, 2021 , the increase or decrease between those periods, the percentage increase or decrease between those periods, and the percentage of total revenue that each represented for those periods: % Revenue Three Months Ended $ % Three Months Ended June 30, Increase Increase June 30, 2022 2021 (Decrease) (Decrease) 2022 2021 Subscription revenue$ 2,560,706 $ 3,121,909 $ (561,203 ) (18.0 )% 96.8 % 91.4 % Advertising revenue 83,762 75,462 8,300 11.0 % 3.2 % 2.2 %
Technology service revenue - 218,432 (218,432 )
(100.0 )% - % 6.4 % Total revenues$ 2,644,468 $ 3,415,803 $ (771,335 ) (22.6 )% 100.0 % 100.0 % Subscription Revenue
Our subscription revenue for the three months endedJune 30, 2022 decreased by$561,203 , or 18.0%, as compared to the three months endedJune 30, 2021 . The decrease in subscription revenue was primarily driven by a decrease in new subscribers as well as a decrease in virtual gift revenue across thePaltalk and Camfrog applications. We attribute this decrease to the overall macro-economic environment that may limit a customer's access to discretionary spending, as well as, to a lesser degree, the lifting of various COVID-19 related restrictions in certain of our target markets that prohibited individuals from leaving their homes and ,as a result, customers are devoting less time to their social applications. Advertising Revenue
Our advertising revenue for the three months endedJune 30, 2022 increased by$8,300 , or 11.0%, as compared to the three months endedJune 30, 2021 . The increase in advertising revenue was primarily due to an increase in the volume of advertising impressions related to changes in and the optimization of third-party advertising partners. Technology Service Revenue Our technology service revenue for the three months endedJune 30, 2022 decreased by$218,432 , or 100.0%, as compared to the three months endedJune 30, 2021 . The decrease in technology service revenue was driven by the termination of the YouNow Agreement, effectiveNovember 23, 2021 . We do not expect to generate a material amount of technology service revenue in future periods.
22 Costs and Expenses
Total costs and expenses for the three months endedJune 30, 2022 increased by$889,262 , or 31.3%, as compared to the three months endedJune 30, 2021 . The following table presents our costs and expenses for the three months endedJune 30, 2022 and 2021, the increase or decrease between those periods and the percentage increase or decrease between those periods and the percentage of total revenue that each represented for those periods: % Revenue Three Months Ended $ % Three Months Ended June 30, Increase Increase June 30, 2022 2021 (Decrease) (Decrease) 2022 2021 Cost of revenue$ 661,548 $ 630,582 $ 30,966 4.9 % 25.0 % 18.5 % Sales and marketing expense 484,133 255,204 228,929 89.7 % 18.3 % 7.5 % Product development expense 1,521,764 1,298,767 222,997 17.2 % 57.5 % 38.0 % General and administrative expense 1,053,347 469,502 583,845 124.4 % 39.8 % 13.7 % Impairment loss on digital tokens 7,262 184,737 (177,475 ) (96.1 )% 0.3 % 5.4 % Total costs and expenses$ 3,728,054 $ 2,838,792 $ 889,262 31.3 % 140.9 % 83.1 % Cost of revenue Our cost of revenue for the three months endedJune 30, 2022 increased by$30,966 , or 4.9%, as compared to the three months endedJune 30, 2021 . The increase in cost of revenue expenses was primarily attributed to an increase in approximately$15,000 of salary and salary-related expenses and an increase of approximately$25,400 of expenses related to ManyCam sales and was partially offset by a decrease in web hosting expenses of approximately$14,400 . Sales and marketing expense Our sales and marketing expense for the three months endedJune 30, 2022 increased by$228,929 , or 89.7%, as compared to the three months endedJune 30, 2021 . The increase in sales and marketing expense for the three months endedJune 30, 2022 was primarily due to an increase of approximately$217,600 in marketing user acquisition expenses, including agent fees, as we began our focus on increasing user engagement spend through the efforts of our third-party
marketing agencies. Product development expense Our product development expense for the three months endedJune 30, 2022 increased by$222,997 , or 17.2%, as compared to the three months endedJune 30, 2021 . The increase was primarily due to an increase of approximately$155,200 related to software expenses and consulting services in support of our processes to enhance user retention and improve monetization in thePaltalk application.
General and administrative expense
Our general and administrative expense for the three months endedJune 30, 2022 increased by$583,845 , or 124.4%, as compared to the three months endedJune 30, 2021 . The increase in general and administrative expense for the three months endedJune 30, 2022 was due to an increase of approximately$244,200 in non-cash stock compensation expense from the issuance of employee stock options, an increase in professional fees relating to corporate matters of approximately$105,300 , an increase in insurance expense of approximately$123,600 and increased amortization expense of approximately$40,200 .
Impairment loss on digital tokens
We recorded a non-cash impairment loss on digital tokens of$7,262 and$184,737 for the three months endedJune 30, 2022 andJune 30, 2021 , respectively, as a result of recent declines in the quoted market prices of certain digital tokens below the market price of their acquisition. 23 Non-Operating (Loss) Income
The following table presents the components of non-operating (loss) income for the three months endedJune 30, 2022 and the three months endedJune 30, 2021 , the decrease between those periods and the percentage decrease between those periods and the percentage of total revenue that each represented for those
periods: % Revenue Three Months Ended Three Months Ended June 30, $ % June 30, 2022 2021 (Decrease) (Decrease) 2022 2021 Interest expense, net$ (1,595 ) $ (420 ) $ (1,175 ) (279.8 )% (0.1 )% (0.0 )% Realized gain from sale of digital tokens - 247,293 (247,293 ) (100.0 )% - % 7.2 % Other expense, net (38,772 ) - (38,772 ) (100.0 )% (1.5 )% - % Total non-operating (loss) income$ (40,367 ) $ 246,873 $ (287,240 ) (116.4 )% (1.6 )% 7.2 %
Non-operating loss for the three months endedJune 30, 2022 was$40,367 , an increase of$287,240 , or 116.4%, as compared to non-operating income of$246,873 for the three months endedJune 30, 2021 . The increase in non-operating loss primarily resulted from the gain from sale of digital tokens during the three months endedJune 30, 2021 that was not similarly recognized during the three months endedJune 30, 2022 . 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 endedJune 30, 2022 andJune 30, 2021 , we recorded an income tax provision of$4,753 and$2,200 , respectively, consisting primarily of state and local taxes.
As of
Six Months Ended
Revenue Revenue decreased to$5,571,169 for the six months endedJune 30, 2022 , from$6,787,805 for the six months endedJune 30, 2021 . The decrease was primarily driven by a decrease in subscription revenue of$854,229 along with a decrease of$374,248 in technology service revenue driven by the termination of the YouNow Agreement. The following table sets forth our subscription revenue, advertising revenue, technology service revenue and total revenues for the six months endedJune 30, 2022 and the six months endedJune 30, 2021 , 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 Six Months Ended $ % Six Months Ended June 30, Increase Increase June 30, 2022 2021 (Decrease) (Decrease) 2022 2021 Subscription revenue$ 5,407,045 $ 6,261,274 $ (854,229 ) (13.6 )% 97.1 % 92.2 % Advertising revenue 164,124 152,283 11,841 7.8 % 2.9 % 2.2 %
Technology service revenue - 374,248 (374,248 )
(100.0 )% - % 5.6 % Total revenues$ 5,571,169 $ 6,787,805 $ (1,216,636 ) (17.9 )% 100.0 % 100.0 % 24 Subscription Revenue Our subscription revenue for the six months endedJune 30, 2022 decreased by$854,229 , or 13.6%, as compared to the six months endedJune 30, 2021 . The decrease in subscription revenue was primarily driven by a decrease in new subscribers as well as a decrease in virtual gifts across thePaltalk and Camfrog applications. We attribute this decrease primarily to the overall macro-economic environment that may limit a customer's access to discretionary spending, as well as, to a lesser degree, the lifting of various COVID-19 related restrictions in certain of our target markets that prohibited individuals from leaving their homes and, as a result, customers are devoting less time to their social applications. Advertising Revenue
Our advertising revenue for the six months ended
Technology Service Revenue Our technology service revenue for the six months endedJune 30, 2022 decreased by$374,248 , or 100.0%, as compared to the six months endedJune 30, 2021 . The decrease in technology service revenue was driven by the termination of the YouNow Agreement, effectiveNovember 23, 2021 . We do not expect to generate a material amount of technology service revenue in future periods. Costs and Expenses
Total costs and expenses for the six months endedJune 30, 2022 reflect an increase in costs and expenses of$1,565,989 , or 27.0%, as compared to the six months endedJune 30, 2021 . The following table presents our costs and expenses for the six months endedJune 30, 2022 and 2021, 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 Six Months Ended $ % Six Months Ended June 30, Increase Increase June 30, 2022 2021 (Decrease) (Decrease) 2022 2021 Cost of revenue$ 1,313,644 $ 1,277,297 $ 36,347 2.8 % 23.6 % 18.8 % Sales and marketing expense 895,615 512,655 382,960 74.7 % 16.1 % 7.6 % Product development expense 3,051,905 2,596,031 455,874 17.6 % 54.8 % 38.2 % General and administrative expense 2,099,495 1,231,212 868,283 70.5 % 37.7 % 18.1 % Impairment loss on digital tokens 7,262 184,737 (177,475 ) (96.1 )% 0.1 % 2.7 % Total costs and expenses$ 7,367,921 $ 5,801,932 $ 1,565,989 27.0 % 132.3 % 85.4 % Cost of revenue Our cost of revenue for the six months endedJune 30, 2022 increased by$36,347 , or 2.8%, as compared to the six months endedJune 30, 2021 . The increase for the six months endedJune 30, 2022 was primarily driven by an increase in approximately$42,800 in salary and salary-related expenses and an increase in approximately$25,400 of ManyCam expenses and was offset by a decrease in web hosting expenses of approximately$44,400 . Sales and marketing expense Our sales and marketing expense for the six months endedJune 30, 2022 increased by$382,960 , or 74.7%, as compared to the six months endedJune 30, 2021 . The increase in sales and marketing expense for the six months endedJune 30, 2022 was primarily due to an increase of approximately$362,900 in marketing expenses, including agent fees, as we begin our focus on increasing user engagement spend through the efforts of our third-party marketing agencies.
25 Product development expense Our product development expense for the six months endedJune 30, 2022 increased by$455,874 , or 17.6%, as compared to the six months endedJune 30, 2021 . The increase was primarily due to an increase of approximately$316,500 related to software expenses and consulting services in support of our processes to enhance user retention and improve monetization in thePaltalk application. In addition, there is an increase in subscription costs of approximately$100,400 related to user engagement monitoring.
General and administrative expense
Our general and administrative expenses for the six months endedJune 30, 2022 increased by$868,283 , or 70.5%, as compared to the six months endedJune 30, 2021 . The increase in general and administrative expense for the six months endedJune 30, 2022 was due to an increase of approximately$352,100 in non-cash stock compensation expense from the issuance of employee stock options, an increase in professional fees relating to corporate matters such as executive agreements of approximately$247,700 , an increase in insurance expense of approximately$107,600 and increased amortization expense of approximately$40,200 .
Impairment loss on digital tokens
We recorded a non-cash impairment loss on digital tokens of$7,262 and$184,737 for the six months endedJune 30, 2022 andJune 30, 2021 , respectively, as a result of recent declines in the quoted market prices of certain digital tokens below the market price of their acquisition. Non-Operating (Loss) Income
The following table presents the components of non-operating (loss) income for the six months endedJune 30, 2022 and the six months endedJune 30, 2021 , 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, 2022 2021 (Decrease) (Decrease) 2022 2021 Interest (expense) income$ (3,457 ) $ 2,047 $ (5,504 ) (268.9 )% (0.1 )% 0.0 % Other expense, net (46,658 ) - (46,658 ) (100.0 )% (0.7 )% - % Realized gain from sale of digital tokens - 247,293 (247,293 ) (100.0 )% - % 3.6 % Gain on extinguishment of term debt - 506,500 (506,500 ) (100.0 )% - % 7.5 % Total non-operating (loss) income$ (50,115 ) $ 755,840 $ (805,955 )
(106.6 )% (0.8 )% 11.1 % Non-operating loss for the six months endedJune 30, 2022 increased by$805,955 , or 106.6%, as compared to non-operating income of$755,840 for the six months endedJune 30, 2021 . The increase in non-operating loss was primarily attributed to the gain on extinguishment of term debt of the$506,500 of proceeds from the Note and the gain from sale of digital tokens of$247,293 during the six months endedJune 30, 2021 that were not similarly recognized during the six months endedJune 30, 2022 . The Note was entered into to help ensure adequate liquidity in light of the uncertainties posed by the COVID-19 pandemic. 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 endedJune 30, 2022 and 2021, the Company recorded an income tax provision of$20,784 and$3,300 , respectively, consisting primarily of
state and local taxes.
As of
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