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Stockholders' Equity
 6 Months Ended
Jun. 30, 2021
Stockholders' Equity Note [Abstract]  
Stockholders' Equity
8. Stockholders’ Equity

 

The Paltalk, Inc. Amended and Restated 2011 Long-Term Incentive Plan (the “2011 Plan”) was terminated as to future awards on May 16, 2016. A total of 121,930 shares of the Company’s common stock may be issued pursuant to outstanding options awarded under the 2011 Plan; however, no additional awards may be granted under such plan. The Paltalk, Inc. 2016 Long-Term Incentive Plan (“the 2016 Plan”) was adopted by the Company’s stockholders on May 16, 2016 and permits the Company to award stock options (both incentive stock options and non-qualified stock options), stock appreciation rights, restricted stock, restricted stock units, performance awards, dividend equivalent rights, and other stock-based awards and cash-based incentive awards to its employees (including an employee who is also a director or officer under certain circumstances), non-employee directors and consultants. The maximum number of shares of common stock that may be issued pursuant to awards under the 2016 Plan is 1,300,000 shares, 100% of which may be issued pursuant to incentive stock options. In addition, the maximum number of shares of common stock that may be issued under the 2016 Plan may be increased by an indeterminate number of shares of common stock underlying outstanding awards issued under the 2011 Plan that are forfeited, expired, cancelled or settled in cash. As of June 30, 2021, there were 958,063 shares available for future issuance under the 2016 Plan.

 

Treasury Shares

 

On April 29, 2019, the Company implemented a stock repurchase plan to repurchase up to $500,000 of its common stock for cash. The repurchase plan expired on April 29, 2020. The Company had purchased 9,950 shares of its common stock under the repurchase plan as of April 29, 2020 and has classified them as treasury shares on the Company’s condensed consolidated balance sheets.

 

Stock Options

 

The following table summarizes the assumptions used in the Black-Scholes pricing model to estimate the fair value of the options granted during the three months ended June 30, 2021:

 

Expected volatility   197.0%
Expected life of option (in years)   5.2 
Risk free interest rate   0.88%
Expected dividend yield   0.0%

 

The expected life of the options is the period of time over which employees and non-employees are expected to hold their options prior to exercise. The expected life of options has been determined using the “simplified” method as prescribed by Staff Accounting Bulletin 110, which uses the midpoint between the vesting date and the end of the contractual term. The volatility of the Company’s common stock is calculated using the Company’s historical volatilities beginning at the grant date and going back for a period of time equal to the expected life of the award. The Company estimates potential forfeitures of stock awards and adjusts recorded stock-based compensation expense accordingly. The Company estimates pre-vesting forfeitures primarily based on the Company’s historical experience and is adjusted to reflect actual forfeitures as the stock-based awards vest.

 

The following table summarizes stock option activity during the six months ended June 30, 2021:

 

       Weighted 
       Average 
   Number of   Exercise 
   Options   Price 
Stock Options:          
Outstanding at January 1, 2021   622,036   $5.53 
Granted   25,220    3.20 
Forfeited or canceled, during the period   (128,569)   4.06 
Expired, during the period   (715)   7.00 
Outstanding at June 30, 2021   517,972   $5.78 
Exercisable at June 30, 2021   440,327   $6.42 

 

At June 30, 2021, there was $136,245 of total unrecognized compensation expense related to stock options, which is expected to be recognized over a weighted average period of 1.5 years.

 

On June 30, 2021, the aggregate intrinsic value of stock options that were outstanding and exercisable was $258,359 and $159,558, respectively. On June 30, 2020, the aggregate intrinsic value of stock options that were outstanding and exercisable was $7,200 and $3,600, respectively. The intrinsic value for stock options is calculated based on the exercise price of the underlying awards and the fair value of such awards as of the period-end date.

 

During the six months ended June 30, 2021, the Company granted stock options to members of the Board of Directors to purchase an aggregate of 24,000 shares of common stock at an exercise price of $3.20 per share. The stock options vest in four equal quarterly installments on the last day of each calendar quarter in 2021 and have a term of ten years. During the six months ended June 30, 2021, the Company also granted options to employees to purchase an aggregate of 1,220 shares of common stock. These options vest between one and four years, have a term of ten years and have an exercise price of $3.20.

 

During the six months ended June 30, 2021, an unvested executive performance award was forfeited and an expense reversal of $218,679 was recorded under general and administrative expense in the condensed consolidated statements of income.

 

The aggregate fair value for the stock options granted during the six months ended June 30, 2021 and 2020 was $78,522 and $18,664, respectively.

 

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

 

   Three Months Ended   Six Months Ended 
   June 30,   June 30, 
   2021   2020   2021   2020 
Cost of revenue  $-   $378   $182   $751 
Sales and marketing expense   96    20    103    40 
Product development expense   2,740    3,839    5,784    11,220 
General and administrative expense   (195,178)   52,946    (167,043)   134,378 
Total stock compensation expense  $(192,342)  $57,183   $(160,974)  $146,389