PALTALK : MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

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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 ended June
30, 2021 and 2020, (ii) the consolidated financial statements and notes thereto
for the year ended December 31, 2020 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, 2021 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, 2020, 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 leading communications software innovator that powers multimedia social
applications. We operate a leading 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.
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 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 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 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.

Background of Presentation and Recent Developments

August 2021 Underwritten Public Offering

On August 5, 2021, we announced the pricing and closing of a firm commitment
underwritten public offering of an aggregate of 1,333,310 shares of our common
stock (which includes 173,910 shares sold to the underwriter pursuant to the
full exercise of the underwriter's over-allotment option) at a public offering
price of $3.00 per share (the "August 2021 Offering"). The August 2021 Offering
was made pursuant to the Form S-1 (File No. 333-257036), initially filed with
the SEC on June 11, 2021, as subsequently amended and declared effective on
August 2, 2021. The August 2021 Offering was made only by means of a prospectus
forming a part of the effective registration statement.
We granted the underwriters a 45-day 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
$3.5 million, after deducting underwriting discounts, commissions and other
estimated offering expenses.
In connection with the August 2021 Offering, our common stock was approved for
listing on The Nasdaq Capital Market under the symbol "PALT" and began trading
on The Nasdaq Capital Market on August 3, 2021.
Update on COVID-19
The World Health Organization declared COVID-19 a pandemic on March 11, 2020.
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 have been able to support the increased demand we
have experienced, 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.
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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 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.

Sale of Secured Communications Assets

As previously announced, on February 24, 2020, we entered into an Asset Purchase
Agreement, which was subsequently amended and restated on May 29, 2020 (the
"Amended and Restated Agreement") with SecureCo, LLC (the "Buyer"), pursuant to
which we agreed to sell substantially all of the assets related to its secure
communications business (the "Secured Communications Assets") to the Buyer (the
"Asset Sale"). The Secured Communications Assets included communication
solutions and operations capabilities for secure messaging and data
applications, and software and middleware for enterprise and government client
targets.
On July 23, 2020, we completed the Asset Sale for a cash purchase price of
$250,000, $150,000 of which was paid at closing and $100,000 of which is payable
in four equal installments over the fifteen-month period following the closing
of the Asset Sale. 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 the Buyer, with the aggregate amount of such royalty payments not to exceed
$500,000. On January 25, 2021, we received the first instalment of payment of
$25,000. We do not expect to continue to pursue secure communications products
or technology implementation services as part of our overall business strategy.

Operational Highlights and Objectives

During the three and six months ended June 30, 2021, we executed key components
of our objectives:

? Completed an uplist of our shares of common stock to the Nasdaq Capital

Market, which began trading on The Nasdaq…

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