Organization and Description of Business	9 Months Ended
Sep. 30, 2024
Organization and Description of Business [Abstract]
Organization and Description of Business	1. Organization and Description of Business *Overview* The accompanying condensed consolidated financial statements include Paltalk, Inc. and its wholly owned subsidiaries, A.V.M. Software, Inc., Paltalk Software Inc., Paltalk Holdings, Inc., Tiny Acquisition Inc., Camshare, Inc., Fire Talk LLC, Vumber LLC and ManyCam ULC (collectively, the “Company”). The Company is a communications software innovator that powers multimedia social applications. The Company’s product portfolio includes Paltalk, Camfrog and Tinychat, which together host a large collection of video-based communities. The Company’s 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. The Company has an over 20-year history of technology innovation and holds 8 patents. *Recent Developments* NTS Acquisition Agreement On August 11, 2024, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”), by and among the Company, PALT Merger Sub 1, Inc., a direct and wholly owned subsidiary of the Company (“First Merger Sub”), PALT Merger Sub 2, LLC, a direct and wholly owned subsidiary of the Company (“Second Merger Sub”), Newtek Technology Solutions, Inc. (“NTS”), and NewtekOne, Inc., the sole stockholder of NTS (“Newtek”), to acquire NTS through a two-step merger process. Pursuant to the Merger Agreement, following the receipt of approval by the Company’s stockholders: (i) NTS will merge with and into First Merger Sub, with NTS continuing as the surviving entity (the “Interim Surviving Entity” and such merger, the “First Step Merger”), and (ii) immediately following the consummation of the First Step Merger, the Interim Surviving Entity will merge with and into Second Merger Sub, with Second Merger Sub continuing as the surviving entity (the “Second Step Merger” and, together with the First Step Merger, the “Mergers”). Pursuant to the Merger Agreement, as consideration for the Mergers, the Company agreed to (i) pay Newtek an amount in cash equal to $4,000,000, which is subject to customary purchase price adjustments as set forth in the Merger Agreement, including a working capital adjustment (the “Merger Closing Cash Consideration”) and (ii) issue Newtek 4,000,000 shares (the “Merger Closing Stock Consideration” and together with the Merger Closing Cash Consideration, the “Merger Closing Consideration”) of a newly created series of preferred stock, the Series A Non-Voting Common Equivalent Stock of the Company, par value $0.001 per share (the “Preferred Stock”). In addition to the Merger Closing Consideration, the Merger Agreement provides that Newtek is entitled to receive an amount up to $5,000,000 (the “Merger Earn-Out Amount”) based on the Company’s achievement certain cumulative average Adjusted EBITDA thresholds for the 2025 and 2026 fiscal years. The Merger Earn-Out Amount may be paid, at the Company’s sole discretion, in cash (the “Merger Earn-Out Cash Consideration”), in shares of Preferred Stock (the “Merger Earn-Out Stock Consideration”) or in a combination thereof. The issuance of the Merger Closing Stock Consideration, the Merger Earn-Out Stock Consideration (if any) and the shares of common stock issuable upon conversion of the Preferred Stock is referred to herein as the “Parent Stock Issuance”. Pursuant to the Merger Agreement, if the issuance of the Merger Closing Stock Consideration or the Merger Earn-Out Stock Consideration would cause Newtek’s “total equity” (as calculated under the Bank Holding Company Act of 1956, as amended, and as implemented and interpreted by the Board of Governors of the Federal Reserve System) in the Company to exceed 33.33% (the “Total Equity Cap”), then the number of shares of Preferred Stock issuable as Merger Closing Stock Consideration and/or Merger Earn-Out Stock Consideration, as applicable, will be adjusted so that the Company will issue Newtek the maximum number of shares of Preferred Stock that would not cause Newtek’s total equity to exceed the Total Equity Cap, with a corresponding increase to the Merger Closing Cash Consideration and the Merger Earn-Out Cash Consideration, as applicable. As a condition to the closing of the Mergers and the transactions contemplated by the Merger Agreement, the Merger Agreement provides that the Company must effectuate the sale of its Paltalk, Camfrog, and Tinychat applications and all assets and liabilities related to such applications. Subsequent to the parties’ entry into the Merger Agreement, Newtek agreed to waive the condition requiring the sale of the Company’s “Tinychat” application so long as all operations of Tinychat have ceased upon the closing of the Mergers. In addition, the closing of the Mergers is subject to the satisfaction of various customary closing conditions, including, among others, approval of the Parent Stock Issuance and the Divestiture by the Company’s stockholders. The Merger Agreement contains certain termination rights for both the Company and Newtek, on behalf of itself and NTS, including, among other things, if the closing has not occurred prior to February 9, 2025. In the event the Merger Agreement is terminated, neither party thereto will owe a termination fee or otherwise incur a liability to any other party under or relating to the Merger Agreement. For the three and nine months ended September 30, 2024, the Company incurred general and administrative expenses of $749,726 and $1,136,476, respectively, associated with the Mergers. *Impact of Macro-Economic Factors* The Company’s results of operations have been and may continue to be negatively impacted by macro-economic factors, including the timing of economic recessions and/or recovery and the overall inflationary environment. Prolonged periods of inflation have affected, and may continue to affect, the Company’s ability to target new customers as well as keep existing customers engaged and may ultimately have a correlating effect on its users’ discretionary spending. Future adverse developments with respect to the economic environment and geopolitical tensions may create additional market and economic uncertainty, which could affect the Company’s industry. *Employee Retention Tax Credit* Under the provisions of the extension of the Coronavirus Aid, Relief, and Economic Security Act, the Company was eligible for a refundable employee retention tax credit (the “ERTC”), subject to certain criteria. During the year ended December 31, 2023, the Company applied for the ERTC and recorded a receivable in the amount of $343,045, net of related costs, which was recognized in the Company’s condensed consolidated statement of operations as other income. As of September 30, 2024, the Company received an aggregate of $294,833, or $228,833 net of related costs, which was recorded as a reduction of the receivable on the Company’s condensed consolidated balance sheet. *Basis of Presentation* The condensed consolidated financial statements included in this report have been prepared on a going concern basis in accordance with generally accepted accounting principles in the United States (“GAAP”) and the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial information. The Company has not included certain information and notes required by GAAP for complete financial statements pursuant to those rules and regulations, although it believes that the disclosure included herein is adequate to make the information presented not misleading. The condensed consolidated financial statements contained herein should be read in conjunction with the Company’s audited consolidated financial statements and the related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on March 15, 2024 (the “Form 10-K”). In the opinion of management, the accompanying unaudited condensed consolidated financial information contains all normal and recurring adjustments necessary to fairly present the condensed consolidated balance sheets and statements of operations, cash flows and changes in stockholders’ equity of the Company for the interim periods presented. The Company’s historical results are not necessarily indicative of future operating results, and the results for the three and nine months ended September 30, 2024 are not necessarily indicative of results for the year ending December 31, 2024, or for any other period.

Organization and Description of Business

9 Months Ended

Sep. 30, 2024

Organization and Description of Business [Abstract]

Organization and Description of Business

1. Organization and Description of Business

Overview

The accompanying condensed consolidated financial statements include Paltalk, Inc. and its wholly owned subsidiaries, A.V.M. Software, Inc., Paltalk Software Inc., Paltalk Holdings, Inc., Tiny Acquisition Inc., Camshare, Inc., Fire Talk LLC, Vumber LLC and ManyCam ULC (collectively, the “Company”).

The Company is a communications software innovator that powers multimedia social applications. The Company’s product portfolio includes Paltalk, Camfrog and Tinychat, which together host a large collection of video-based communities. The Company’s 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. The Company has an over 20-year history of technology innovation and holds 8 patents.

Recent Developments

NTS Acquisition Agreement

On August 11, 2024, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”), by and among the Company, PALT Merger Sub 1, Inc., a direct and wholly owned subsidiary of the Company (“First Merger Sub”), PALT Merger Sub 2, LLC, a direct and wholly owned subsidiary of the Company (“Second Merger Sub”), Newtek Technology Solutions, Inc. (“NTS”), and NewtekOne, Inc., the sole stockholder of NTS (“Newtek”), to acquire NTS through a two-step merger process. Pursuant to the Merger Agreement, following the receipt of approval by the Company’s stockholders: (i) NTS will merge with and into First Merger Sub, with NTS continuing as the surviving entity (the “Interim Surviving Entity” and such merger, the “First Step Merger”), and (ii) immediately following the consummation of the First Step Merger, the Interim Surviving Entity will merge with and into Second Merger Sub, with Second Merger Sub continuing as the surviving entity (the “Second Step Merger” and, together with the First Step Merger, the “Mergers”).

Pursuant to the Merger Agreement, as consideration for the Mergers, the Company agreed to (i) pay Newtek an amount in cash equal to $4,000,000, which is subject to customary purchase price adjustments as set forth in the Merger Agreement, including a working capital adjustment (the “Merger Closing Cash Consideration”) and (ii) issue Newtek 4,000,000 shares (the “Merger Closing Stock Consideration” and together with the Merger Closing Cash Consideration, the “Merger Closing Consideration”) of a newly created series of preferred stock, the Series A Non-Voting Common Equivalent Stock of the Company, par value $0.001 per share (the “Preferred Stock”). In addition to the Merger Closing Consideration, the Merger Agreement provides that Newtek is entitled to receive an amount up to $5,000,000 (the “Merger Earn-Out Amount”) based on the Company’s achievement certain cumulative average Adjusted EBITDA thresholds for the 2025 and 2026 fiscal years. The Merger Earn-Out Amount may be paid, at the Company’s sole discretion, in cash (the “Merger Earn-Out Cash Consideration”), in shares of Preferred Stock (the “Merger Earn-Out Stock Consideration”) or in a combination thereof. The issuance of the Merger Closing Stock Consideration, the Merger Earn-Out Stock Consideration (if any) and the shares of common stock issuable upon conversion of the Preferred Stock is referred to herein as the “Parent Stock Issuance”.

Pursuant to the Merger Agreement, if the issuance of the Merger Closing Stock Consideration or the Merger Earn-Out Stock Consideration would cause Newtek’s “total equity” (as calculated under the Bank Holding Company Act of 1956, as amended, and as implemented and interpreted by the Board of Governors of the Federal Reserve System) in the Company to exceed 33.33% (the “Total Equity Cap”), then the number of shares of Preferred Stock issuable as Merger Closing Stock Consideration and/or Merger Earn-Out Stock Consideration, as applicable, will be adjusted so that the Company will issue Newtek the maximum number of shares of Preferred Stock that would not cause Newtek’s total equity to exceed the Total Equity Cap, with a corresponding increase to the Merger Closing Cash Consideration and the Merger Earn-Out Cash Consideration, as applicable.

As a condition to the closing of the Mergers and the transactions contemplated by the Merger Agreement, the Merger Agreement provides that the Company must effectuate the sale of its Paltalk, Camfrog, and Tinychat applications and all assets and liabilities related to such applications. Subsequent to the parties’ entry into the Merger Agreement, Newtek agreed to waive the condition requiring the sale of the Company’s “Tinychat” application so long as all operations of Tinychat have ceased upon the closing of the Mergers.

In addition, the closing of the Mergers is subject to the satisfaction of various customary closing conditions, including, among others, approval of the Parent Stock Issuance and the Divestiture by the Company’s stockholders. The Merger Agreement contains certain termination rights for both the Company and Newtek, on behalf of itself and NTS, including, among other things, if the closing has not occurred prior to February 9, 2025. In the event the Merger Agreement is terminated, neither party thereto will owe a termination fee or otherwise incur a liability to any other party under or relating to the Merger Agreement.

For the three and nine months ended September 30, 2024, the Company incurred general and administrative expenses of $749,726 and $1,136,476, respectively, associated with the Mergers.

Impact of Macro-Economic Factors

The Company’s results of operations have been and may continue to be negatively impacted by macro-economic factors, including the timing of economic recessions and/or recovery and the overall inflationary environment. Prolonged periods of inflation have affected, and may continue to affect, the Company’s ability to target new customers as well as keep existing customers engaged and may ultimately have a correlating effect on its users’ discretionary spending. Future adverse developments with respect to the economic environment and geopolitical tensions may create additional market and economic uncertainty, which could affect the Company’s industry.

Employee Retention Tax Credit

Under the provisions of the extension of the Coronavirus Aid, Relief, and Economic Security Act, the Company was eligible for a refundable employee retention tax credit (the “ERTC”), subject to certain criteria. During the year ended December 31, 2023, the Company applied for the ERTC and recorded a receivable in the amount of $343,045, net of related costs, which was recognized in the Company’s condensed consolidated statement of operations as other income. As of September 30, 2024, the Company received an aggregate of $294,833, or $228,833 net of related costs, which was recorded as a reduction of the receivable on the Company’s condensed consolidated balance sheet.

Basis of Presentation

The condensed consolidated financial statements included in this report have been prepared on a going concern basis in accordance with generally accepted accounting principles in the United States (“GAAP”) and the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial information. The Company has not included certain information and notes required by GAAP for complete financial statements pursuant to those rules and regulations, although it believes that the disclosure included herein is adequate to make the information presented not misleading. The condensed consolidated financial statements contained herein should be read in conjunction with the Company’s audited consolidated financial statements and the related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on March 15, 2024 (the “Form 10-K”).

In the opinion of management, the accompanying unaudited condensed consolidated financial information contains all normal and recurring adjustments necessary to fairly present the condensed consolidated balance sheets and statements of operations, cash flows and changes in stockholders’ equity of the Company for the interim periods presented. The Company’s historical results are not necessarily indicative of future operating results, and the results for the three and nine months ended September 30, 2024 are not necessarily indicative of results for the year ending December 31, 2024, or for any other period.