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Stockholders' Equity

9 Months Ended

Sep. 30, 2024

Stockholders' Equity [Abstract]

Stockholders' Equity

6. 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 16,976 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 September 30, 2024, there were 607,685 shares available for future issuance under the 2016 Plan.

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 nine months ended September 30, 2024:

Expected volatility			151.5	%
Expected life of option (in years)			5.2 – 6.2
Risk free interest rate			4.2	%
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 adjusts to reflect actual forfeitures as the stock-based awards vest.

The following table summarizes stock option activity during the nine months ended September 30, 2024:

						Weighted
						Average
		Number of				Exercise
		Options				Price
Stock Options:
Outstanding at January 1, 2024			740,814			$	3.32
Granted during the period			28,000				2.78
Exercised during the period			(14,830	)			2.68
Expired, during the period			(14,820	)			10.13
Outstanding at September 30, 2024			739,164			$	3.17
Exercisable at September 30, 2024			574,277			$	3.48

At September 30, 2024, there was $257,519 of total unrecognized compensation expense related to stock options, which is expected to be recognized over a weighted average period of 2.4 years.

On September 30, 2024, the aggregate intrinsic value of stock options that were outstanding and exercisable was $492,169 and $306,498, respectively. On September 30, 2023, the aggregate intrinsic value of stock options that were outstanding and exercisable was $20,430 and $19,867, respectively. The intrinsic value of 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 nine months ended September 30, 2024, 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 $2.78 per share. The stock options vest in four equal quarterly installments on the last day of each calendar quarter in 2024 and have a term of ten years. During the nine months ended September 30, 2024, the Company also granted options to employees to purchase an aggregate of 4,000 shares of common stock. These options vest in four equal annual installments over four years, have a term of ten years and have an exercise price of $2.78. The aggregate fair value for the options granted during the nine months ended September 30, 2024 and 2023 was $72,240 and $90,380, respectively.

During the three months ended September 30, 2024, 14,830 stock options were exercised. These stock options had an average exercise price of $2.68 per share and a weighted average share price of $4.12 per share on the date of exercise. Net proceeds to the Company in connection with the exercise of these stock options were approximately $39,772, and the aggregate intrinsic value of the stock options exercised was $21,341. No stock options were exercised during the three months ended September 30, 2023.

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

		Three Months Ended								Nine Months Ended
		September 30, (unaudited)								September 30, (unaudited)
		2024				2023				2024				2023
Cost of revenue		$	3,346			$	3,189			$	9,832			$	8,555
Sales and marketing expense			-				524				-				2,005
Product development expense			8,091				7,714				23,786				22,203
General and administrative expense			21,132				45,953				90,512				136,928
Total stock compensation expense		$	32,569			$	57,380			$	124,130			$	169,691

Treasury Shares

The Board of Directors approved a stock repurchase plan for up to $1,750,000 of the Company’s outstanding common stock (the “Stock Repurchase Plan”), effective as of March 29, 2022, which expired on March 29, 2023, the one-year anniversary of such date. Under the Stock Repurchase Plan, shares were repurchased from time-to-time in open market transactions at prevailing market prices, in privately negotiated transactions or by other means in accordance with federal securities laws, including Rule 10b5-1 programs. The actual timing, number and value of shares repurchased was determined by a committee of the Board of Directors at its discretion and depended on a number of factors, including the market price of the Company’s common stock, general market and economic conditions, alternative investment opportunities and other corporate considerations.

As of September 30, 2024 and December 31, 2023, the Company had 641,963 shares of its common stock classified as treasury shares on the Company’s consolidated balance sheets.