# Intelligent Protection Management Corp.: Form 10-Q for the period ended Mar 31, 2022

- Company: [Intelligent Protection Management Corp.](/companies/ipm.md) (CIK 1355839)
- Form: 10-Q
- Filed: 2022-05-10
- Accepted by EDGAR: May 10, 2022, 16:24 ET
- Period: 2022-03-31
- Accession: 0001213900-22-025216
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1355839/000121390022025216/f10q0322_paltalkinc.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1355839/000121390022025216/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2022-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2022-01-01 to 2022-03-31 | $2.9m | us-gaap:Revenues |
| Cost of revenue | 3 months, 2022-01-01 to 2022-03-31 | $652.1k | us-gaap:CostOfRevenue |
| Research and development | 3 months, 2022-01-01 to 2022-03-31 | $1.5m | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2022-01-01 to 2022-03-31 | −$713.2k | us-gaap:OperatingIncomeLoss |
| Net income | 3 months, 2022-01-01 to 2022-03-31 | −$738.9k | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2022-01-01 to 2022-03-31 | −$0.08 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2022-01-01 to 2022-03-31 | −$0.08 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2022-01-01 to 2022-03-31 | 9,832,157 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2022-01-01 to 2022-03-31 | −$1.2m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Cash and equivalents | at 2022-03-31 | $20.4m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2022-03-31 | $20.8m | us-gaap:AssetsCurrent |
| Total assets | at 2022-03-31 | $27.5m | us-gaap:Assets |
| Current liabilities | at 2022-03-31 | $2.9m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2022-03-31 | $3.1m | us-gaap:Liabilities |
| Long-term debt | at 2022-03-31 | $138.8k | us-gaap:LongTermDebtNoncurrent |
| Shareholders' equity | at 2022-03-31 | $24.5m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 36,749 characters.

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 months ended March 31, 2022 and 2021, (ii) the consolidated financial statements and notes thereto for the year ended December 31, 2021 included in our Annual Report on Form 10-K (the “Form 10-K”) filed with the Securities and Exchange Commission (the “SEC”) on March 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 of December 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 includes Paltalk, Camfrog and Tinychat, which together host a large collection of video-based communities. Our other product is Vumber, which is a telecommunications services provider that enables users to communicate privately by having multiple phone numbers with any area code through which calls can be forwarded to a user’s existing telephone number. 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.

### Recent Developments

#### Update on COVID-19

The global spread of the COVID-19 pandemic and the various attempts to contain it have created significant volatility, uncertainty and economic disruption. COVID-19 continues to have an unpredictable and unprecedented impact on the U.S. economy as federal, state and local governments react to this public health crisis with travel restrictions and potential quarantines. Although our core multimedia social applications were able to support the increased demand we experienced from the second quarter of 2020 through the year ended December 31, 2021, the extent of the future impact of the COVID-19 pandemic on our business is highly uncertain and difficult to predict. Adverse economic and market conditions as a result of COVID-19 could also affect the demand for 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.

On April 13, 2020, to help ensure adequate liquidity in light of the uncertainties posed by the COVID-19 pandemic, we applied for a loan under the Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”) under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), and on May 3, 2020, we entered into a promissory note with an aggregate principal amount of $506,500 (the “Note”) in favor of Citibank, N.A., as lender (the “Lender”). On January 13, 2021, the Note was fully forgiven by the SBA and the Lender in compliance with the provisions of the CARES Act. 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.

### Operational Highlights and Objectives

During the three months ended March 31, 2022, we executed key components of our objectives:

- selected yellowHEAD, an AI-powered performance marketing company, to lead the Company’s increased marketing efforts for its Camfrog application;
- partnered with Hive Automated Content Moderation Solutions to roll out new content moderation software for increased user experience;
- partnered with NoGood, a growth marketing firm, to accelerate user acquisition for the Company’s Paltalk application;
- reported net loss of $0.7 million for the year ended March 31, 2022, compared to net income of $0.9 million for the year ended March 31, 2021 primarily as a result of our engagement of marketing firms as well as a non-cash gain in the first quarter of 2021 of $0.5 million related to the forgiveness of the proceeds from the PPP loan the Company received in 2020; and
- net decrease in cash flows from operations of $1.2 million for the three months ended March 31, 2022 mainly as result of an increase in sales and marketing expenses, an increase in product development expense as a result of our investment in customer acquisition, and an increase in general and administrative expenses in connection with increased professional fees and payment of year-end bonuses.

For the near term, our business objectives include:

- continuing to invest in robust marketing initiatives through marketing agencies in order to drive new user acquisition intended to result in an increase in revenue;
- 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 retention and monetization, which collectively are intended to increase user engagement and revenue opportunities;
- continuing to explore strategic opportunities, including, but not limited to, potential mergers or acquisitions of other assets or 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 in future periods will continue to 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 service and partnership agreements that we negotiate with third parties, which includes development, integration, engineering, licensing or other services that we provide.

On May 29, 2020, we entered into an Asset Purchase Agreement, which was subsequently amended and restated (the “Amended and Restated Agreement”) with SecureCo, LLC (“SecureCo”), pursuant to which we agreed to sell substantially all of the assets related to our secure communications business (the “Secured Communications Assets”) to SecureCo. 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 SecureCo, with the aggregate amount of such royalty payments not to exceed $500,000. The royalty payments, if received, will be recorded as technology service revenue. We do not expect to continue to pursue secure communications products or technology implementation services as part of our overall business strategy.

We recorded technology service revenue in connection with our agreement to serve as a launch partner with Open Props, Inc. (formerly YouNow, Inc., and referred to herein as “YouNow”) and to integrate YouNow’s props infrastructure (the “Props platform”) into our Camfrog and Paltalk applications (as amended, the “YouNow Agreement”).

Pursuant to the terms of the YouNow Agreement, once the integration of Props tokens into our Paltalk 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 the Paltalk 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.

In August 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 on November 23, 2021. We now expect that most of our technology service revenue generated in the future will result from opportunistic partnerships between us and third parties.

### 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.

### 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 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 March 31, 2022 | 2021 |
| --- | ---: | ---: |
| Subscription bookings | $2,776,699 | $3,104,438 |
| Net cash (used in) provided by operating activities | $(1,232,954) | $96,055 |
| Net (loss) income | $(738,945) | $916,729 |
| Adjusted EBITDA | $(484,431) | $535,177 |
| Adjusted EBITDA as percentage of total revenues | (16.6)% | 15.9% |

17

#### 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 in the United States (“GAAP”).

#### Adjusted EBITDA

Adjusted EBITDA is a non-GAAP financial measure. Adjusted EBITDA is defined as net income (loss) adjusted to exclude interest income (expense), net, provision for income taxes, gain on the extinguishment of term debt, depreciation and amortization expense, other income, net 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.

#### 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.

Because of these limitations, you should consider Adjusted EBITDA alongside other financial performance measures, including various metrics of cash flows, 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:

| Reconciliation of Net (loss) income to Adjusted EBITDA: | Three Months Ended March 31, 2022 | 2021 |
| --- | ---: | ---: |
| Net (loss) income | $(738,945) | $916,729 |
| Interest expense (income), net | 1,862 | (2,467) |
| Other expense, net | 7,886 | - |
| Gain on the extinguishment of term debt | - | (506,500) |
| Provision for income taxes | 16,031 | 1,100 |
| Depreciation and amortization expense | 76,264 | 94,947 |
| Stock-based compensation expense | 152,471 | 31,368 |
| Adjusted EBITDA | $(484,431) | $535,177 |

### 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 March 31, 2022 | 2021 |
| --- | ---: | ---: |
| Total revenue | 100.0% | 100.0% |
| Costs and expenses: |  |  |
| Cost of revenue | 22.3% | 19.2% |
| Sales and marketing expense | 14.1% | 7.6% |
| Product development expense | 52.3% | 38.5% |
| General and administrative expense | 35.7% | 22.6% |
| Total costs and expenses | 124.4% | 87.9% |
| (Loss) income from operations | (24.4)% | 12.1% |
| Interest (expense) income, net | (0.1)% | 0.1% |
| Gain on extinguishment of term debt | -% | 15.0% |
| Other expense | (0.3)% | -% |
| (Loss) income from operations before provision for income taxes | (24.8)% | 27.2% |
| Provision for income taxes | (0.5)% | (0.0)% |
| Net (loss) income | (25.3)% | 27.2% |

19

### Three Months Ended March 31, 2022 Compared to Three Months Ended March 31, 2021

### Revenue

Total revenue decreased by 13% to $2,926,701 for the three months ended March 31, 2022 from $3,372,002 for the three months ended March 31, 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 ended March 31, 2022 and the three months ended March 31, 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:

|  | Three Months Ended March 31, 2022 | 2021 | $% Increase (Decrease) | Increase (Decrease) | % Revenue Three Months Ended March 31, 2022 | 2021 |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Subscription revenue | $2,846,339 | $3,139,365 | $(293,026) | (9.3)% | 97.3% | 93.1% |
| Advertising revenue | 80,362 | 76,821 | 3,541 | 4.6% | 2.7% | 2.3% |
| Technology service revenue | - | 155,816 | (155,816) | (100.0)% | -% | 4.6% |
| Total revenues | $2,926,701 | $3,372,002 | $(445,301) | (13.2)% | 100.0% | 100.0% |

#### Subscription Revenue

Our subscription revenue for the three months ended March 31, 2022 decreased by $293,026, or 9.3%, as compared to the three months ended March 31, 2021. The decrease in subscription revenue was primarily driven by a decrease in new subscribers as well as a decrease in virtual gifts across the Paltalk and Camfrog applications. We attribute this decrease primarily to the lifting of various COVID-19 related restrictions in certain of our target markets.

#### Advertising Revenue

Our advertising revenue for the three months ended March 31, 2022 increased by $3,541, or 4.6%, as compared to the three months ended March 31, 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 ended March 31, 2022 decreased by $155,816, or 100.0%, as compared to the three months ended March 31, 2021. The decrease in technology service revenue was driven by the termination of the YouNow Agreement, effective November 23, 2021.

### Costs and Expenses

Total costs and expenses for the three months ended March 31, 2022 increased by $676,727, or 22.8%, as compared to the three months ended March 31, 2021. The following table presents our costs and expenses for the three months ended March 31, 2022 and 2021, the increase between those periods and the percentage increase between those periods and the percentage of total revenue that each represented for those periods:

|  | Three Months Ended March 31, 2022 | 2021 | $% Increase | Increase | % Revenue Three Months Ended March 31, 2022 | 2021 |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Cost of revenue | $652,096 | $646,715 | $5,381 | 0.8% | 22.3% | 19.2% |
| Sales and marketing expense | 411,482 | 257,451 | 154,031 | 59.8% | 14.1% | 7.6% |
| Product development expense | 1,530,141 | 1,297,264 | 232,877 | 18.0% | 52.3% | 38.5% |
| General and administrative expense | 1,046,148 | 761,710 | 284,438 | 37.3% | 35.7% | 22.6% |
| Total costs and expenses | $3,639,867 | $2,963,140 | $676,727 | 22.8% | 124.4% | 87.9% |

#### Cost of revenue

Our cost of revenue for the three months ended March 31, 2022 increased by $5,381, or 0.8%, as compared to the three months ended March 31, 2021. Cost of revenue expenses remained stable for the three months ended March 31, 2022 compared to the three months ended March 31, 2021. Payment processing fees decreased approximately $24,800, offset by an increase of approximately $12,700 in non-cash stock compensation expense from the issuance of employee’s stock options and an increase of approximately $14,300 relating to employee’s salary and other related expenses.

#### Sales and marketing expense

Our sales and marketing expense for the three months ended March 31, 2022 increased by $154,031, or 59.8%, as compared to the three months ended March 31, 2021. The increase in sales and marketing expense for the three months ended March 31, 2022 was primarily due to an increase of approximately $145,600 in marketing user acquisition expenses, including agent fees, as we begin our focus on increasing consumer acquisition spend through the efforts of our third-party marketing agencies.

#### Product development expense

Our product development expense for the three months ended March 31, 2022 increased by $232,877, or 18.0%, as compared to the three months ended March 31, 2021. The increase was primarily due to an increase of approximately $205,400 related to consulting services in support of our processes to enhance user retention and improve monetization in the Paltalk application.

#### General and administrative expense

Our general and administrative expense for the three months ended March 31, 2022 increased by $284,438, or 37.3%, as compared to the three months ended March 31, 2021. The increase in general and administrative expense for the three months ended March 31, 2022 was due to an increase of approximately $107,900 in non-cash stock compensation expense from the issuance of employee’s stock options, an increase in legal fees relating to corporate matters such as executive agreements of approximately $136,100 and an increase in investor relations expense of approximately $20,300.

### Non-Operating (Loss) Income

The following table presents the components of non-operating (loss) income for the three months ended March 31, 2022 and the three months ended March 31, 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:

|  | Three Months Ended March 31, 2022 | 2021 | $% (Decrease) | (Decrease) | % Revenue Three Months Ended March 31, 2022 | 2021 |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Interest (expense) income, net | $(1,862) | $2,467 | $(4,329) | (175.5)% | (0.1)% | 0.1% |
| Gain on extinguishment of term debt | - | 506,500 | (506,500) | (100.0)% | -% | 15.0% |
| Other expense | (7,886) | - | (7,886) | (100.0)% | (0.3)% | -% |
| Total non-operating (loss) income | $(9,748) | $508,967 | $(518,715) | (101.9)% | (0.4)% | 15.1% |

Non-operating loss for the three months ended March 31, 2022 was $9,748, a decrease of $518,715, or 101.9%, as compared to non-operating income of $508,967 for the three months ended March 31, 2021. The decrease resulted from the gain on extinguishment of term debt during the three months ended March 31 2021, of the $506,500 of proceeds from the Note received in order 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 three months ended March 31, 2022 and March 31, 2021, the Company recorded an income tax provision of $16,031 and $1,100, respectively, consisting primarily of state and local taxes.

As of March 31, 2022, our conclusion regarding the realizability of our US deferred tax assets did not change and we have recorded a full valuation allowance against them.

### Liquidity and Capital Resources

| Condensed Consolidated Statements of Cash Flows Data: | Three Months Ended March 31, 2022 | 2021 |
| --- | ---: | ---: |
| Net cash (used in) provided by operating activities | $(1,232,954) | $96,055 |
| Net cash provided by investing activities | - | - |
| Net cash provided by financing activities | - | - |
| Net (decrease) increase in cash and cash equivalents | $(1,232,954) | $96,055 |

22

Currently, our primary source of liquidity is cash on hand, and we believe that our cash and cash equivalents balance and our expected cash flows from operations will be sufficient to meet all of our financial obligations for one year from the date these financial statements are issued. As of March 31, 2022, we had $20,403,906 of cash and cash equivalents.

Our primary use of working capital is related to product development resources and an investment in marketing activities 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 seek to grow our business by expending our capital resources to fund strategic investments and partnership opportunities.

On August 5, 2021, we announced the closing of an underwritten public offering (the “August 2021 Offering”) in which we offered and sold 1,159,400 shares of our common stock. We also granted the underwriters an option to purchase up to an additional 173,910 shares of common stock at the public offering price less discounts and commissions to cover over-allotments, which was exercised in full on August 5, 2021. The net proceeds to us from the August 2021 Offering were approximately $3.2 million, after deducting underwriting discounts, commissions and other estimated offering expenses.

In addition, on October 19, 2021, we announced the pricing and closing of an underwritten public offering (the “October 2021 Offering”) in which we offered and sold 1,552,500 shares of our common stock. We also granted the underwriters an option to purchase up to an additional 202,500 shares of common stock at the public offering price less discounts and commissions to cover over-allotments, which was exercised in full on October 14, 2021. The net proceeds to us from the October 2021 Offering were approximately $10.7 million, after deducting underwriting discounts, commissions and other estimated offering expenses.

### Operating Activities

Net cash used in operating activities was $1,232,954 for the three months ended March 31, 2022, as compared to net cash provided by operating activities of $96,055 for the three months ended March 31, 2021. Changes in accounts receivable and deferred revenue contributed to lower cash flows from operations for the three months ended March 31, 2022 of $19,423 and $34,713, respectively, compared to the three months ended March 31, 2021. The decrease in cash flows from operations resulted mainly from a decrease in subscription revenue and an increase in overall operating expenses as we focus on user retention and engagement.

### Investing Activities

There was no net cash provided by investing activities for the three months ended March 31, 2022 and for the three months ended March 31, 2021.

### Financing Activities

There was no net cash provided by financing activities for the three months ended March 31, 2022 and for the three months ended March 31, 2021.

### Contractual Obligations and Commitments

As discussed above, on May 3, 2020, to help ensure adequate liquidity in light of the uncertainties posed by the COVID-19 pandemic, we entered into the Note in favor of the Lender in the aggregate principal amount of $506,500. The Note had a two-year term and borne interest at a stated rate of 1.0% per annum. We did not provide any collateral or guarantees for the Note, nor did we pay any facility charge to obtain the Note. The Note provided for customary events of default, including, among others, those relating to failure to make payment, bankruptcy, breaches of representations and material adverse effects. On January 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.

On April 9, 2021, we entered into a lease extension agreement with Jericho Executive Center LLC for the office space at 30 Jericho Executive Plaza in Jericho, New York, which commenced on December 1, 2021 and runs through November 30, 2024. Our monthly office rent payments under the lease are currently approximately $7,081 per month.

On March 23, 2022, we entered into an Amended and Restated Employment Agreement with Jason Katz, our Chief Executive Officer (the “Katz Employment Agreement”), which amended and restated Mr. Katz’s existing employment agreement with the Company dated as of October 7, 2016. In addition, on March 23, 2022, we entered into an Amended and Restated Employment Agreement with Kara Jenny, our Chief Financial Officer (the “Jenny Employment Agreement”), which amended and restated Ms. Jenny’s existing employment with the Company dated as of December 9, 2019.

Pursuant to the Katz Employment Agreement, effective retroactively as of February 1, 2021, Mr. Katz shall receive an annualized base salary of two hundred twenty-five thousand dollars ($225,000). In addition, the Katz Employment Agreement provides that in the event of a “change in control,” if Mr. Katz is terminated by the Company other than for “cause,” or if Mr. Katz terminates his employment with the Company for “good reason,” then we shall pay Mr. Katz severance equal to three months of Mr. Katz’s then-current annualized base salary (each such capitalized term as defined in the Katz Employment Agreement).

Pursuant to the Jenny Employment Agreement, for fiscal year 2022, Ms. Jenny is entitled to receive an annualized base salary of two hundred sixty-five thousand dollars ($265,000), effective retroactively as of January 28, 2022. For fiscal year 2023, provided that Ms. Jenny is still employed and in good standing with the Company, she will be entitled to receive an annualized base salary of two hundred eighty-five thousand dollars ($285,000). In addition, the Jenny Employment Agreement provides that in the event of a “change in control,” if Ms. Jenny is terminated by the Company other than for “cause,” or if Ms. Jenny terminates her employment with the Company for “good reason,” then we shall pay Ms. Jenny severance equal to twelve months of Ms. Jenny’s then-current annualized base salary (each such capitalized term as defined in the Jenny Employment Agreement).

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 March 31, 2022, we did not have any off-balance sheet arrangements.

## Controls and procedures

As filed, 1,750 characters.

### Evaluation of Disclosure Controls and Procedures

Our management, including our principal executive officer and principal 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 March 31, 2022, our management, including our principal executive officer and principal financial officer, concluded that our disclosure controls and procedures were 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.

### Changes in Internal Control over Financial Reporting

There have been no 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.

## Risk factors

As filed, 208 characters.

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.

Filed May 10, 2022.
Source: SEC EDGAR, the filing index for accession 0001213900-22-025216. Last ingested by Listed: Oct 24, 2026, 15:09 ET. No prices; not investment advice.