What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2025-03-24 compared with 2024-03-15 · 708 added, 413 removed, 337 unchanged (77% of the section changed)

FINANCIAL STATEMENTS AND SUPPLEMENTARY

Report of Independent Registered

Public Accounting Firm (PCAOB No.

Consolidated Balance Sheets

as of December 31, 2023 and 2022

Consolidated Statements of

Operations for the Years Ended December 31, 2023 and 2022

Consolidated Statements of

Changes in Stockholders’ Equity for the Years Ended December 31, 2023 and 2022

Consolidated Statements of

Cash Flows for the Years Ended December 31, 2023 and 2022

Notes to Consolidated Financial

REPORT OF INDEPENDENT REGISTERED

PUBLIC ACCOUNTING FIRM

To the Stockholders and Board of Directors of

Paltalk, Inc.

Report of Independent Registered Public Accounting Firms (Grassi & Co., CPAs, P.C.

Marcum LLP PCAOB No.

688 ) F-2 – F-4

Consolidated Balance Sheets as of December 31, 2024 and 2023 F-5

Consolidated Statements of Operations for the Years Ended December 31, 2024 and 2023 F-6

Consolidated Statements of Changes in Stockholders’ Equity for the Years Ended December 31, 2024 and 2023 F-7

Consolidated Statements of Cash Flows for the Years Ended December 31, 2024 and 2023 F-8

Notes to Consolidated Financial Statements F-9

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING

To the Board of Directors and

Stockholders of Intelligent Protection Management Corp.

Opinion on the Financial Statements

We have audited the accompanying consolidated

balance sheets of Paltalk, Inc.

and Subsidiaries (the “Company”) as of December 31, 2023 and 2022, the related consolidated

statements of operations, changes in stockholders’ equity and cash flows for each of the two years in the period ended December

31, 2023, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements

present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of

its operations and its cash flows for each of the two years in the period ended December 31, 2023, in conformity with accounting principles

generally accepted in the United States of America.

We have audited the accompanying balance sheet

of Intelligent Protection Management Corp.

(the “Company”) as of December 31, 2024, and the related statements of operations,

stockholders’ equity, and cash flows for the year then ended, and the related notes (collectively referred to as the “consolidated

financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position

of the Company as of December 31, 2024, and the results of its operations and its cash flows for the year then ended, in conformity with

accounting principles generally accepted in the United States of America.

We also have audited the adjustments to the 2023 consolidated financial statements to retrospectively present

the discontinued operations and held for sale presentation, as described in Note 3.

In our opinion, such adjustments are appropriate and

have been properly applied.

We were not engaged to audit, review, or apply any procedures to the 2023 consolidated financial statements

of the Company other than with respect to the adjustments and, accordingly, we do not express an opinion or any other form of assurance

on the 2023 consolidated financial statements taken as a whole.

As discussed in Note 2 to the consolidated financial

statements, the Company adopted ASU 2023-07, Segment Reporting (Topic 280) as of December 31, 2024 on a retrospective basis.

have audited the Company’s implementation of ASU 2023-07 and the related disclosures.

In our opinion such adoption is appropriate

and has been properly applied.

We were not engaged to audit, review, or apply any procedures to the 2023 financial statements of the Company

other than with respect to the implementation of ASU 2023-07, and accordingly, we do not express an opinion or any other form of assurance

on the 2023 financial statements taken as a whole.

Basis for Opinion

These financial statements are the responsibility

of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements based on our

These consolidated financial statements are the

responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements

based on our audit.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB)

2 unchanged sentences

rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the

We conducted our audit in accordance with the

standards of the PCAOB.

Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the

financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were

we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits we are required to obtain an

understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the

Company’s internal control over financial reporting.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial

statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged

to perform, an audit of its internal control over financial reporting.

As part of our audit, we are required to obtain an understanding

of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s

internal control over financial reporting.

Accordingly, we express no such opinion.

Our audits included performing procedures to

assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that

respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well

as evaluating the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Our audit included performing procedures to assess

the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond

to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating

the overall presentation of the financial statements.

We believe that our audit provide a reasonable basis for our opinion.

Critical Audit Matters

Critical audit matters are matters arising from

the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging,

subjective, or complex judgments.

We determined that there are no critical audit matters.

/s/ Marcum llp

The critical audit matters communicated below

are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to

the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our

especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion

on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions

on the critical audit matters or on the accounts or disclosures to which they relate.

Valuation of Goodwill

Description of the matter

As discussed in Note 2 to the consolidated

financial statements, the Company performs its impairment test of goodwill on an annual basis, or more frequently if events or circumstances

indicate that the carrying value of goodwill exceeds its fair value.

The principal consideration for our

determination that this was a critical audit matter is the complexity surrounding the held for sale classification of the reporting unit

and related goodwill in connection with the divestiture subsequent to year-end.

Auditing the valuation of goodwill involves complex judgements

due to subjective evaluation of indicators and significant estimation required in determining the recoverability and fair value of goodwill.

How we addressed the matter

Our audit procedures related to the

valuation of goodwill included the following, among others,

a) We evaluated the design of certain controls over the Company’s impairment assessment of goodwill.

We considered management’s internal controls in determining the nature, timing and extent of audit tests applied in our audit.

b) We evaluated management’s assessment of qualitative factors relating to the goodwill recoverability,

by accumulating our understanding of the reporting unit’s performance and divesture transaction subsequent to year-end.

c) As a result of impairment indicators identified:

We obtained management’s evaluation of impairment under

both ASC 350, Intangibles – Goodwill and Other and ASC 360,

Property, Plant and Equipment .

We obtained management’s calculation of goodwill impairment

and audited the inputs inclusive of the divestiture transaction subsequent to year end.

d) We assessed the Company’s disclosure of its impairment assessments and resultant impairment included

/s/ Grassi & Co., CPAs, P.C.

We have served as the Company’s auditor since 2024.

March 24, 2025

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING

To the Stockholders and Board of Directors of

Intelligent Protection Management Corp.

Paltalk, Inc.)

Opinion on the Financial Statements

We have audited, before the effects of the retrospective

adjustments for the adoption of ASU 2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures (“ASU

2023-07”) discussed in Note 2 and discontinued operations and held for sale presentation discussed in Note 1 and Note 3 to the consolidated

financial statements, the accompanying consolidated balance sheet of Intelligent Protection Management Corp.

(f/k/a Paltalk, Inc.) (the

“Company”) as of December 31, 2023, the related consolidated statements of operations, changes in stockholders’ equity

and cash flows for the year ended December 31, 2023, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the 2023 financial statements, before the effects of the retrospective adjustment for the adoption of ASU 2023-07 discussed

in Note 2 and discontinued operations and held for sale presentation discussed in Note 1 and Note 3, the financial statements present

fairly, in all material respects, the financial position of the Company as of December 31, 2023, and the results of its operations and

its cash flows for the year ended December 31, 2023, in conformity with accounting principles generally accepted in the United States

We were not engaged to audit, review, or apply

any procedures to the retrospective adjustments for the adoption of ASU 2023-07 discussed in Note 2 and discontinued operations and held

for sale presentation discussed in Note 1 and Note 3 to the consolidated financial statements, and accordingly, we do not express an opinion

or any other form of assurance about whether such retrospective adjustments are appropriate and have been properly applied.

Those retrospective

adjustments were audited by other auditors.

Basis for Opinion

These financial statements are the responsibility

of the Company's management.

Our responsibility is to express an opinion on the Company's financial statements based on our audit.

are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are

required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and

regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the

standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial

statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged

to perform, an audit of its internal control over financial reporting.

As part of our audit we are required to obtain an understanding

of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal

control over financial reporting.

Accordingly, we express no such opinion.

Our audit included performing procedures to assess

the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond

to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating

the overall presentation of the financial statements.

We believe that our audit provides a reasonable basis for our opinion.

/s/ Marcum llp

We have served as the Company’s auditor from 2016 through March

March 15, 2024

INTELLIGENT PROTECTION MANAGEMENT CORP.

CONSOLIDATED BALANCE SHEETS

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Cash and cash equivalents

Accounts receivable, net of allowances of $ 23,326 and $ 3,648 as of December 31, 2023 and 2022, respectively

Employee retention tax credit receivable, net

Prepaid expense and other current assets

Assets held for sale - current

Total current assets

Operating lease right-of-use asset

Assets held for sale - noncurrent

Intangible assets, net

3 unchanged sentences

Accrued expenses and other current liabilities

Contingent consideration

Operating lease liabilities, current portion

Deferred subscription revenue

Liabilities held for sale - current

Total current liabilities

Operating lease liabilities, non-current portion

Deferred tax liability

3 unchanged sentences

Common stock, $ 0.001 par value, 25,000,000 shares authorized, 9,878,950 shares issued and 9,236,987 and 9,222,157 shares outstanding as of December 31, 2024 and 2023, respectively

Treasury stock, 641,963 and 636,771 shares repurchased as of December 31, 2023 and 2022, respectively

Treasury stock, 641,963 shares repurchased as of December 31, 2024 and 2023 respectively

( 1,199,337 )

4 unchanged sentences

( 14,884,568 )

Total stockholders’

Total liabilities and

stockholders’ equity

Total stockholders’ equity

Total liabilities and stockholders’ equity

The accompanying notes are an integral part of

these consolidated financial statements.

PALTALK, INC.

INTELLIGENT PROTECTION MANAGEMENT CORP.

CONSOLIDATED STATEMENTS OF OPERATIONS

Subscription revenue

Advertising revenue

Total revenue

Costs and expenses

3 unchanged sentences

General and administrative expense

Impairment loss on digital tokens

Total costs and expenses

Loss from operations

Loss from continuing operations

( 5,121,549 )

2 unchanged sentences

Other income, net

Loss from operations before income tax benefit

Loss from continuing operations before income tax benefit

( 4,406,264 )

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Income tax benefit

Net loss from continuing operations

( 4,268,675 )

( 2,687,008 )

Net loss per share of common stock:

Weighted average number of shares of common stock used in calculating

(Loss) income from discontinued operations, net of income tax expense of $ 24,357 and $ 7,695 , respectively

( 4,157,534 )

$ ( 8,426,209 )

$ ( 1,067,335 )

Net loss per share of common stock:

Basic – continuing operations

Diluted – continuing operations

Basic – discontinued operations

Diluted – discontinued operations

Weighted average number of shares of common stock used in calculating net loss per share of common stock:

The accompanying notes are an integral part of

these consolidated financial statements.

PALTALK, INC.

INTELLIGENT PROTECTION MANAGEMENT CORP.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’

FOR THE YEARS ENDED DECEMBER 31, 2024 AND 2023

Stockholders’

Additional Paid-in

Total Stockholders’

Balance at December 31, 2022

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$ ( 1,192,124 )

$ ( 13,817,233 )

Stock-based compensation expense

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Stock-based compensation expense

Repurchases of common stock

Exercise of employee stock options

( 8,426,209 )

3 unchanged sentences

$ ( 1,199,337 )

$ ( 23,310,777 )

The accompanying notes are an integral part of

these consolidated financial statements.

PALTALK, INC.

INTELLIGENT PROTECTION MANAGEMENT CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS

2 unchanged sentences

$ ( 1,067,335 )

Adjustments to reconcile net loss from operations to net cash

used in operating activities:

Depreciation of property and equipment

Net loss (income) from discontinued operations

( 1,619,673 )

Net loss from continuing operations

$ ( 4,268,675 )

$ ( 2,687,008 )

Adjustments to reconcile net loss from continuing operations to net cash used in operating activities:

Amortization of intangible assets

Amortization of operating lease right-of-use assets

Impairment loss on digital tokens

Income tax benefit

1 unchanged sentence

Stock-based compensation

Bad debt expense

Changes in operating assets and liabilities:

Accounts receivable, net

Operating lease liability

3 unchanged sentences

Deferred subscription revenue

Net cash used in operating activities – continuing operations

( 2,661,653 )

( 2,980,199 )

Net cash (used in) provided by operating activities –discontinued operations

Net cash used in operating activities

2 unchanged sentences

Cash flows from investing activities:

Acquisition of ManyCam assets

( 2,700,000 )

Acquisition related costs of ManyCam assets

Payment of contingent consideration

Net cash used in investing activities

( 2,942,279 )

Cash flows from financing activities:

Proceeds from exercise of employee stock options

Purchase of treasury stock

Net cash used in financing activities

Net cash provided by (used in) financing activities

Net decrease in cash and cash equivalents

1 unchanged sentence

( 1,171,884 )

Balance of cash and cash equivalents at beginning of period

Balance of cash and cash equivalents at end of period

Supplemental disclosure of cash flow information:

Non-cash investing and financing activities:

Deferred tax liability associated with the acquisition of ManyCam

Accrued contingent consideration

The accompanying notes are an integral part of

these consolidated financial statements.

PALTALK, INC.

Balance of cash and cash equivalents at beginning of year

Balance of cash and cash equivalents at end of year

The accompanying notes are an integral part of these consolidated financial

INTELLIGENT PROTECTION MANAGEMENT CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

and Description of Business

The accompanying 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 are 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.

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.

Additionally, the closures of certain banks in 2023 and their placement into receivership with the Federal Deposit

Insurance Corporation created bank-specific and broader financial institution liquidity challenges and concerns.

Future adverse developments

with respect to specific financial institutions or the broader financial services industry may create additional market and economic

uncertainty, which could affect the Company’s industry.

Organization and Description of Business

The accompanying condensed consolidated financial

statements include Intelligent Protection Management Corp.

(f/k/a 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”).

Prior to the completion of the Transactions (as

defined below), the Company operated a network of consumer applications.

The Company’s product portfolio included Paltalk, Camfrog

and Tinychat, which together hosted a large collection of video-based communities.

The Company’s other products included 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.

Following the Transactions, the Company continues

to support its ManyCam software, which 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.

Following the Transactions, the Company provides

a comprehensive range of IT-related services, including dedicated server hosting, cloud hosting, data storage, managed security, backup

and disaster recovery, and other related services including consulting and implementing technology solutions for large enterprise and

commercial clients across the United States as well as small-and-medium sized businesses.

The Company has an over 20-year history of technology

innovation and holds eight patents.

Recent Developments

On January 2, 2025 (the “Closing Date”),

the Company completed the acquisition of Newtek Technology Solutions, Inc., a New York corporation (“NTS”), pursuant to that

certain Agreement and Plan of Merger (the “Acquisition Agreement”), dated August 11, 2024, by and among the Company, PALT

Merger Sub 1, Inc., a New York corporation and a direct and wholly owned subsidiary of the Company (“First Merger Sub”), PALT

Merger Sub 2, LLC, a Delaware limited liability company and a direct and wholly owned subsidiary of the Company (“Second Merger

Sub”), NTS and NewtekOne, Inc., a Maryland corporation and the sole stockholder of NTS.

Pursuant to the terms of the Acquisition

Agreement, on the Closing Date:

(i) NTS merged 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 merged with and into Second Merger Sub (the “Second Step Merger” and, together

with the First Step Merger, the “Acquisition”), with the Second Merger Sub surviving as a wholly owned subsidiary of the Company.

Following the closing of the Acquisition (the “Acquisition Closing”), the Company changed its name from “Paltalk, Inc.”

to “Intelligent Protection Management Corp.” The aggregate consideration delivered by the Company to Newtek at the Acquisition

Closing consisted of (i) $ 4,000,000 in cash (as adjusted pursuant to the Acquisition Agreement, the “Acquisition Closing Cash Consideration”)

and (ii) 4,000,000 shares of the Company’s Series A Non-Voting Common Equivalent Stock (the “Series A Preferred Stock”

and such shares issued at the Acquisition Closing, the “Acquisition Closing Stock Consideration” and together with the Acquisition

Closing Cash Consideration, the “Acquisition Closing Consideration”).

The Series A Preferred Stock will automatically convert

into one share of our common stock, par value $ 0.001 per share (subject to certain customary anti-dilution adjustments), upon the occurrence

of certain qualifying transfers by Newtek to third parties.

In addition to the Acquisition Closing Consideration, Newtek is entitled to

earn-out payments under certain circumstances.

For more information, see the Note 11, “ Subsequent Events ” below.

connection with the Acquisition, the Company incurred professional fees of $ 1.8 million for the year ended December 31, 2024.

These amounts

are included in general and administrative expenses.

On the Closing Date and prior to the Acquisition

Closing, the Company completed the sale to Meteor Mobile Holdings, Inc., a Delaware corporation (“Meteor Mobile”), of its

telecommunications services provider, “Vumber”, as well as its “Paltalk” and “Camfrog” applications

and certain assets and liabilities related to such services provider and applications (the “Transferred Assets,” and such

sale, the “Divestiture,” and, together with the Acquisition, the “Transactions”) pursuant to that certain Asset

Purchase Agreement, dated November 7, 2024, by and among the Company, its wholly owned subsidiaries Paltalk Holdings, Inc., Paltalk Software,

Inc., Camshare, Inc., A.V.M.

Software, Inc.

and Vumber, LLC (collectively, the “Sellers”), and Meteor Mobile.

of the Divestiture, the Company is no longer engaged in the business of providing video-based, live streaming, virtual camera and telecommunications

software to consumers, as and to the extent such businesses were previously conducted by the Company pursuant to the “Vumber,”

“Paltalk” and “Camfrog” applications.

In addition, prior to the Acquisition Closing, the Company ceased all operations

of its “Tinychat” service and application.

The consideration delivered by Meteor Mobile to the Company at the closing of the

Divestiture consisted of (i) $ 1,350,000 in cash and (ii) the assumption of all of the liabilities of the Sellers arising out of, or relating

to, the Business or the Transferred Assets, other than certain excluded liabilities (the “Divestiture Closing Consideration”).

In connection with the Divestiture, the Company is entitled to earn-out payments under certain circumstances.

For more information, see

the Note 11, “ Subsequent Events ” below.

INTELLIGENT PROTECTION MANAGEMENT CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Discontinued Operations

During the year ended December 31, 2024, the Transferred Assets met

the criteria for classification as assets held for sale and discontinued operations as the Company received stockholder approval of the

sale of its Transferred Assets at its special meeting of stockholders held on December 30, 2024.

As such, assets and liabilities related

to these divested assets are presented as held for sale/discontinued operations on the consolidated balance sheet as of December 31, 2024

and 2023 respectively, and the results of operations are presented as discontinued operations on the consolidated statement of operations

for the fiscal years ended December 31, 2024 and 2023, respectively.

Subsequent to year end, on January 2, 2025, the Company completed

the Divestiture as described above.

Employee Retention

5 unchanged sentences

Company’s condensed consolidated statement of operations as other income.

As of December 31, 2023, the Company received an aggregate

of $ 294,833 , which was recorded as a reduction of the receivable on our condensed consolidated balance sheet.

of Significant Accounting Policies

As of December 31, 2023, the Company had received an aggregate

of $ 294,833 , which was recorded as a reduction of the receivable on the Company’s consolidated balance sheet.

As of December 31,

2024, the balance due to the Company was $ 114,212 .

Summary of Significant Accounting Policies

Principles of Consolidation

4 unchanged sentences

Recent Accounting Standards

In December 2023, the Financial Accounting Standards

Board issued Accounting Standards Update (“ASU”) 2023-09, “ Income Taxes (Topic 740):

Improvements to Income Tax

Disclosures ”.

ASU 2023-09 is intended to enhance the transparency and decision usefulness of income tax disclosures for publicly

traded companies.

The amendments in ASU 2023-09 address investor requests for enhanced income tax information primarily through changes

to the rate reconciliation and income taxes paid information.

ASU 2023-09 will be effective for the Company in the annual period beginning

January 1, 2025, though early adoption is permitted.

The Company is currently in the process of determining the impact of adoption of

the provisions of ASU 2023-09 on its financial position, results of operations and cash flows.

In June 2016, the Financial Accounting Standards

Board issued ASU No.

2016-13 “Financial Instruments - Credit Losses (Topic 326)” and also issued subsequent amendments to

the initial guidance under ASU 2018-19, ASU 2019-04 and ASU 2019-05 (collectively, “Topic 326”).

Topic 326 requires the measurement

and recognition of expected credit losses for financial assets held at amortized cost.

This replaces the existing incurred loss model

with an expected loss model and requires the use of forward-looking information to calculate credit loss estimates.

The Company adopted

ASU 2016-13 on January 1, 2023.

The adoption of ASU 2016-13 did not have a material impact on the Company’s financial position,

results of operations or cash flows.

PALTALK, INC.

2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-07, “ Segment

Reporting (Topic 280):

Improvements to Reportable Segment Disclosures” (“ASU 2023-07”).

ASU 2023-07 is effective

for public entities for fiscal years beginning after December 15, 2023, and interim periods in fiscal years beginning after December 15,

2024, and requires single reporting entities to comply with the expanded reportable segment disclosures outlined in the ASU.

reportable segment disclosures are intended to enhance certain disclosures surrounding significant segment expenses.

The Company reports its segment information to

reflect the manner in which the chief operating decision maker (the “CODM”) reviews and assesses performance.

The Company’s

Chief Executive Officer, President and Chief Operating Officer have joint responsibility as the CODM and review and assess the performance

of the Company as a whole.

The primary financial measures used by the CODM

to evaluate performance and allocate resources are net income (loss) and operating income (loss).

The CODM uses net income (loss) and

operating income (loss) to evaluate the performance of the Company’s ongoing operations and as part of the Company’s internal

planning and forecasting processes.

Information on net income (loss) and operating income (loss) is disclosed in the Consolidated Statements

of Operations.

Segment expenses and other segment items are provided to the CODM on the same basis as disclosed in the Consolidated Statements

of Operations.

The CODM does not evaluate performance or allocate

resources based on segment assets, and therefore such information is not presented in the notes to the financial statements.

As the Company

is a single-segment business, the adoption of this new standard did not have a material effect on the Company’s financial statements.

In November 2024, the FASB issued ASU 2024-03, Disaggregation of Income Statement Expenses.

The new standard requires entities to disclose

additional information about certain expenses, such as purchases of inventory, employee compensation, depreciation, intangible asset amortization,

as well as selling expenses included in commonly presented expense captions on the income statement.

The FASB further clarified the effective

date in January 2025 with the issuance of ASU 2025-01, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures

(Subtopic 220-40):

Clarifying the Effective Date.

The ASU is effective for fiscal years beginning after December 15, 2026, and interim

periods beginning after December 15, 2027.

Companies have the option to apply this guidance either on a retrospective or prospective basis,

and early adoption is permitted.

The company is currently evaluating this guidance to determine the impact it may have on its consolidated

financial statements and related disclosures.

INTELLIGENT PROTECTION MANAGEMENT CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

6 unchanged sentences

of estimates requires the exercise of judgment.

Actual results inevitably will differ from those estimates, and such differences may

be material to the financial statements.

During the year ended December 31, 2023, there

were no critical accounting estimates made by management that would have a material effect on the financial statements.

During the year ended December 31, 2022, the

most significant accounting estimate inherent in the preparation of the financial statements included the discount rates and weighted

average costs of capital used in the fair value of the ManyCam intangible assets and in assigning their respective useful lives.

fair values and estimates were based on a number of factors, including a valuation from an independent third party.

Actual results inevitably will differ from those estimates, and such differences may be

material to the financial statements.

During the year ended December 31, 2024, the most

significant accounting estimate inherent in the preparation of the Company’s financial statements

was the evaluation of goodwill for impairment.

Revenue Recognition

In accordance with Accounting Standards and Codifications

(“ASC”) 606, Revenue from Contracts with Customers , revenue from contracts with customers is recognized when control

of the promised services is transferred to the customers in an amount that reflects the consideration the Company expects to receive

in exchange for those services.

Sales tax is excluded from reported revenue.

The Company has elected the practical expedient allowable

by the guidance to not disclose information about remaining performance obligations pertaining to contracts that have an original expected

(“ASC”) 606, Revenue from Contracts with Customers , revenue from contracts with customers was historically recognized

when control of the promised services was transferred to the customers in an amount that reflected the consideration the Company expected

to receive in exchange for those services.

Sales tax was excluded from reported revenue.

The Company elected the practical expedient allowable

by the guidance to not disclose information about remaining performance obligations pertaining to contracts that had an original expected

duration of one year or less.

Subscription Revenue

The Company generates subscription revenue primarily

from monthly premium subscription services.

Subscription revenues are presented net of refunds, credits, and known and estimated credit

card chargebacks.

During the years ended December 31, 2023 and 2022, subscriptions were offered in durations of one-, six- twelve- and

twenty four-month terms.

All subscription fees, however, are paid by credit card at the origination of the subscription regardless of

the term of the subscription.

Revenues from multi-month subscriptions are recognized on a straight-line basis over the period where the

service is offered to the customer, indicated by length of the subscription term purchased.

The unearned portion of subscription revenue

is presented as deferred revenue in the accompanying consolidated balance sheets.

Deferred revenue at December 31, 2022 was $ 2,257,452 ,

The Company historically generated subscription revenue primarily from

monthly premium subscription services.

Subscription revenues are presented net of refunds, credits, and known and estimated credit card

During the years ended December 31, 2024 and 2023, subscriptions were offered in durations of one-, six- twelve- and twenty

four-month terms.

All subscription fees, however, were paid by credit card at the origination of the subscription regardless of the term

of the subscription.

Revenues from multi-month subscriptions were recognized on a straight-line basis over the period where the service

was offered to the customer, indicated by length of the subscription term purchased.

The unearned portion of subscription revenue is presented

as deferred revenue in the accompanying consolidated balance sheets.

Deferred revenue attributed to continuing operations at December

31, 2023 was $ 544,442 , and deferred revenue attributed to discontinued operation at December 31, 2023 was $ 1,498,920 , the total of $ 2,043,362

which was subsequently recognized as subscription revenue during the year ended December 31, 2024.

The ending balance of deferred revenue

at December 31, 2023 was $ 2,043,362 .

In addition, the Company offers virtual gifts

to its users.

Users may purchase credits in $5, $10 or $20 increments that can be redeemed for a host of virtual gifts such as a rose,

a beer or a car, among other items.

These gifts are given among users to enhance communication and are typically redeemed within 30 days

Upon purchase, the virtual gifts are credited to the users’ account and are under the users’ control.

gift revenue is recognized upon the users’ redemption of virtual gifts at the fixed transaction price and included in subscription

revenue in the accompanying consolidated statements of operations.

Virtual gift revenue is presented as deferred revenue in the consolidated

balance sheets until virtual gifts are redeemed.

Virtual gift revenue was $ 4,522,461 and $ 4,550,864 for the years ended December 31,

2023 and 2022, respectively.

The ending balance of deferred revenue from virtual gifts at December 31, 2023 and 2022 was $ 374,696 and

$ 393,433 , respectively.

PALTALK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

at December 31, 2024 related to subscription revenue from continuing operations was $ 555,039 and deferred revenue related to discontinued

operations was $ 1,596,199 for a total of $ 2,151,238 .

In addition, the Company offered virtual gifts

to its users during the years ended December 31, 2024 and 2023.

Users could purchase credits in $5, $10 or $20 increments that can be

redeemed for a host of virtual gifts such as a rose, a beer or a car, among other items.

These gifts were given among users to enhance

communication and were typically redeemed within 30 days of purchase.

Upon purchase, the virtual gifts were credited to the users’

account and were under the users’ control.

Virtual gift revenue was recognized upon the users’ redemption of virtual gifts

at the fixed transaction price and included in subscription revenue in the accompanying consolidated statements of operations.

gift revenue is presented as deferred revenue in the consolidated balance sheets until virtual gifts are redeemed.

Virtual gift revenue

was $ 3,017,047 and $ 4,522,461 for the years ended December 31, 2024 and 2023, respectively.

The ending balance of deferred revenue from

virtual gifts at December 31, 2024 and 2023 was $ 673,874 and $ 374,696 , respectively.

These amounts are included in discontinued operations

for all periods presented as they relate to revenue from the Transferred Assets.

The accounts receivable amount is related to amounts due in connection with advertising revenue.

At December 31, 2024, approximately 50 %

of the Company’s accounts receivable was from four customers.

At December 31, 2023, approximately 31 % of the Company’s accounts

receivable was from three customers.

Net (Loss) Income Per Share

Basic earnings and net (loss) income per share are computed by dividing

the net (loss) income available to common stockholders by the weighted average number of common shares outstanding during the period as

defined by ASC Topic 260, Earnings Per Share .

Diluted earnings per share is computed using the weighted average number of common

shares and, if dilutive, potential common shares outstanding during the period.

Potential common shares consist of the incremental common

shares issuable upon the exercise of stock options (using the treasury stock method).

To the extent stock options are antidilutive, they

are excluded from the calculation of diluted income per share.

Basic earnings and net (loss) income per share

was computed by dividing the net (loss) income available to common stockholders by the weighted average number of common shares outstanding

during the period as defined by ASC Topic 260, Earnings Per Share .

Diluted earnings per share was computed using the weighted average

number of common shares and, if dilutive, potential common shares outstanding during the period.

Potential common shares consist of the

incremental common shares issuable upon the exercise of stock options (using the treasury stock method).

To the extent stock options were

antidilutive, they were excluded from the calculation of diluted income per share.

INTELLIGENT PROTECTION MANAGEMENT CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Cash and Cash Equivalents

The Company considers all highly liquid investments

with an original maturity of three months or less at the date of purchase to be cash equivalents.

with an original maturity of three months or less at the date of purchase, as well as certain other short term treasury bills, to be cash equivalents.

Cash and cash equivalents consist of

cash on deposit with banks and money market funds.

The Company maintains cash in bank accounts which, at times, may exceed federally

insured limits.

The Company maintains cash in bank accounts which, at times, may exceed federally insured

As part of its cash management process, the Company periodically reviews the relative credit standing of these banks.

The Company has not experienced any losses in such accounts and periodically evaluates the credit worthiness of the financial institutions

and has determined the credit exposure to be negligible.

Goodwill is recorded when the purchase price

paid for an acquisition exceeds the estimated fair value of the net identified tangible and intangible assets acquired.

has not experienced any losses in such accounts and periodically evaluates the credit worthiness of the financial institutions and has

determined the credit exposure to be negligible.

Goodwill is recorded when the purchase price paid

for an acquisition exceeds the estimated fair value of the net identified tangible and intangible assets acquired.

The Company evaluates

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test, if, after assessing the totality of events or circumstances such as those described in paragraph ASC 350-20-35-3C(a) through (g),

the Company determines that it is more likely than not that the fair value of a reporting unit is less than its carrying amount.

the Company determines that it was more likely than not that the fair value of a reporting unit is less than its carrying amount.

An impairment

charge is recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value, limited to the total

charge is recognized for the amount by which the carrying amount exceeded the reporting unit’s fair value, limited to the total

amount of goodwill related to the reporting unit.

The Company tests the recorded amount of goodwill

for impairment on an annual basis on December 31 of each fiscal year or more frequently if there are indicators that the fair value of

the goodwill exceeds its carrying amount.

The Company tests the recorded amount of goodwill for impairment on

an annual basis on December 31 of each fiscal year or more frequently if there are indicators that the fair value of the goodwill exceeds

its carrying amount.

The Company has one reporting unit.

The Company performed a qualitative assessment and concluded

that no impairment existed as of December 31, 2023 and 2022.

The Company received stockholder approval for the sale of the Transferred Assets

at its special meeting of stockholders held on December 30, 2024.

On December 31, 2024, following its special meeting of stockholders,

the Company performed a qualitative assessment and concluded that $ 3.7 million was impaired as of December 31, 2024 and is included in

the loss from discontinued operations.

The Company accounts for income taxes under the

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effect for the year in which the differences are expected to reverse.

The effect of a change in tax rates on deferred tax assets and

liabilities is recognized in income in the period that includes the enactment date.

The effect of a change in tax rates on deferred tax assets and liabilities

is recognized in income in the period that includes the enactment date.

The Company recognizes deferred tax assets to

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future taxable income, tax-planning strategies, and results of recent operations.

If the Company determines that it would be able to

realize deferred taxes in the future in excess of their net recorded amount, the Company would make an adjustment to the deferred tax

asset valuation allowance, which would reduce the provision for income taxes.

If the Company determines that it would be able to realize

deferred taxes in the future in excess of their net recorded amount, the Company would make an adjustment to the deferred tax asset valuation

allowance, which would reduce the provision for income taxes.

The Company records uncertain tax positions in

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the Company determines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits

of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, the Company recognizes the

largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.

of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, the Company recognizes the largest

amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.

The Company recognizes interest and penalties

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low-taxed income is to treat, as a period cost, when incurred.

Reduction Act of 2022

On August 16,

2022, the Inflation Reduction Act of 2022 (the “IR Act”) was signed into federal law.

The IR Act provides for, among other

things, a new U.S.

federal 1 % excise tax on certain repurchases of stock by publicly traded U.S.

domestic corporations and certain U.S.

domestic subsidiaries of publicly traded foreign corporations occurring on or after January 1, 2023.

The excise tax is imposed on

the repurchasing corporation itself, not its shareholders from which shares are repurchased.

The amount of the excise tax is generally

1 % of the fair market value of the shares repurchased at the time of the repurchase.

However, for purposes of calculating the excise tax,

repurchasing corporations are permitted to net the fair market value of certain new stock issuances against the fair market value of stock

repurchases during the same taxable year.

In addition, certain exceptions apply to the excise tax.

Department of the Treasury

has been given authority to provide regulations and other guidance to carry out and prevent the abuse or avoidance of the excise tax.

The IR Act was not applicable to the Company in the current year given that repurchases of

stock were below the threshold required to be subject to taxation.

PALTALK, INC.

INTELLIGENT PROTECTION MANAGEMENT CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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The Company’s acquired amortizable intangible

assets primarily consist of the ManyCam assets acquired in June 2022, which consist of internally developed software, intellectual property

(trade names, trademarks and URLs) and subscriber relationships/ customer lists.

assets as of December 31, 2024 primarily consisted of the ManyCam assets acquired in June 2022, which consist of internally developed

software, intellectual property (trade names, trademarks and URLs) and subscriber relationships/customer lists.

The Company’s intangible assets represent

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would be recognized when estimated undiscounted future cash flows expected to result from the use of an asset are less than its carrying

The impairment loss would be based on the excess of the carrying value of the impaired asset over its fair value, determined

based on discounted cash flows.

No impairments were recorded on intangible assets as no impairment indicators were noted for the periods

presented in these consolidated financial statements.

Intangible assets, net consisted of the following for the periods

The impairment loss would be based on the excess of the carrying value of the impaired asset over its fair value, determined based

on discounted cash flows.

No impairments were recorded on intangible assets, as no impairment indicators were noted, for the periods presented

in these consolidated financial statements.

Discontinued Operations

During the year ended December 31, 2024, the Transferred Assets met

the criteria for classification as assets held for sale and discontinued operations as the Company received stockholder approval of the

sale of its Transferred Assets at its special meeting of stockholders held on December 30, 2024.

Accordingly, the assets and liabilities

related to the Transferred Assets are presented as discontinued operations for all periods presented.

Subsequent to year end, on January

2, 2025, the Company completed the Divestiture as described above and received cash proceeds of $ 1.35 million.

The following table summarizes the operating results of the Transferred

Assets for the periods indicated:

For the Year Ended

Subscription revenue

Advertising revenue

Total Revenue

Costs and expenses

Cost of revenue

Sales and marketing expense

Product development expense

General and administrative expense

Impairment loss in connection with Divestiture

Total Costs and Expenses

(Loss) Income from discontinued operations

( 4,133,177 )

Income tax liability

Net (loss) income from discontinued operations

$ ( 4,157,534 )

INTELLIGENT PROTECTION MANAGEMENT CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Furthermore, in connection with the Divestiture,

the Company evaluated the held for sale disposal group for impairment as follows:

Estimated proceeds from sale of Transferred Assets, net of $283K of expenses

Net carrying value of the disposal group

( 4,916,796 )

Impairment loss on held for sale assets

$ ( 3,849,765 )

The Company allocated the impairment loss in connection

with the assets held for sale to goodwill.

The following table summarizes the assets and

liabilities of the Transferred Assets included in the consolidated balance sheets for the periods indicated, after recognition of the

impairments described above and are included as assets and liabilities attributed to discontinued operations:

As of December 31,

Accounts receivable, net

Prepaids and other current assets

Total current assets

Total Assets - discontinued operations

Accounts payable

Accrued expenses

Deferred revenue

Total Liabilities - discontinued operations

Intangible Assets, Net, Continuing Operations

Intangible assets, net consisted of the following for the periods presented:

Trade names, trademarks, product names, URLs

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During the year ended December 31, 2023, in connection

with the previously acquired ManyCam assets and pursuant to the securities purchase agreement related to such asset acquisition, the

Company made an earn-out payment of $ 85,000 because the sales of the ManyCam software, less chargebacks and refunds, in the six-month

period following the closing of the acquisition exceeded $ 600,000 but were less than $ 700,000 .

with the previously acquired ManyCam assets and pursuant to the securities purchase agreement related to such asset acquisition, the Company

made an earn-out payment of $ 85,000 because the sales of the ManyCam software, less chargebacks and refunds, in the six-month period following

the closing of the acquisition exceeded $ 600,000 but were less than $ 700,000 .

No intangible assets were sold in the Divestiture.

Amortization expense for the years ended December

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The aggregate amortization expense for each of the next five years and thereafter

is estimated to be $ 821,687 in 2024, $ 568,529 in 2025, $ 382,133 in 2026, $ 382,133 in 2027, $ 382,133 in 2028, and $ 167,862 thereafter.

The Organization for Economic Co-operation and

Development (OECD) Pillar Two Model Rules are intended to apply for tax years beginning in 2024.

The Pillar Two Model Rules establishes

a global minimum tax of 15 % for multinational companies with consolidated revenue above € 750 million.

Many foreign jurisdictions

have adopted the Pillar Two Model Rules and other foreign jurisdictions are in the process of enacting legislation to adopt it.

does not expect to be impacted by the Pillar Two Model Rules as it will not meet the consolidated revenue threshold in the near term.

PALTALK, INC.

is estimated to be $ 568,529 in 2025, $ 382,133 in 2026, $ 382,133 in 2027, $ 382,133 in 2028, and $ 167,853 thereafter.

INTELLIGENT PROTECTION MANAGEMENT CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Organization for Economic Co-operation and

Development Pillar Two Model Rules are intended to apply for tax years beginning in 2024.

The Pillar Two Model Rules establishes a global

minimum tax of 15 % for multinational companies with consolidated revenue above € 750 million.

Many foreign jurisdictions have adopted

the Pillar Two Model Rules and other foreign jurisdictions are in the process of enacting legislation to adopt it.

The Company does not

expect to be impacted by the Pillar Two Model Rules as it will not meet the consolidated revenue threshold in the near term.

In December 2023, the FASB issued ASU 2023-09,

“ Income Taxes (Topic 740) :

Improvements to Income Tax Disclosures.” ASU 2023-09 is intended to enhance the transparency

and decision usefulness of income tax disclosures for publicly traded companies.

The amendments in ASU 2023-09 address investor requests

for enhanced income tax information primarily through changes to the rate reconciliation and income taxes paid information.

will be effective for the Company in the annual period beginning January 1, 2025, though early adoption is permitted.

The Company is still

evaluating the presentational effect that ASU 2023-09 will have on its financial statements, but the Company expects considerable changes

to its income tax footnote.

The components of loss before income tax benefit

are as follows:

are presented as follows:

Domestic Operations

2 unchanged sentences

Foreign Operations

Loss from continuing operations before income tax benefit

$ ( 4,406,264 )

$ ( 2,714,955 )

The Company’s benefit for income taxes

is comprised of the following:

The Company’s benefit for income taxes is

comprised of the following:

State and local

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from the U.S.

federal statutory income tax rate of 21 3 %

for 2023 and 2022 as follows:

federal statutory income tax rate of 21 % for 2024 and 2023 as follows:

Income tax benefit at federal statutory rate

Permanent Differences

Transaction Costs

State and local taxes

4 unchanged sentences

Effective tax rate

PALTALK, INC.

INTELLIGENT PROTECTION MANAGEMENT CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Deferred income taxes reflect the net tax effects

of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used

for income tax purposes.

Significant components of the Company’s deferred tax assets and liabilities are as follows:

Deferred income taxes reflect the net tax effects of temporary differences

between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

Significant components of the Company’s deferred tax assets and liabilities are as follows and relate to continuing operations:

Deferred Tax Assets:

15 unchanged sentences

$ ( 614,041 )

In assessing the Company’s ability to recover

its deferred tax assets, the Company evaluated whether it is more likely than not that some portion or the entire deferred tax asset

will be realized.

The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income in those

periods in which temporary differences become deductible and/or net operating losses can be utilized.

The Company considered all positive

and negative evidence when determining the amount of the net deferred tax assets that are more likely than not to be realized.

This evidence

includes, but is not limited to, historical earnings, scheduled reversal of taxable temporary differences, tax planning strategies and

projected future taxable income.

A significant piece of objective negative evidence evaluated was cumulative loss incurred over the three-year

period ended December 31, 2023.

Such objective evidence limits the ability to consider other subjective evidence, such as our projections

for future growth.

In assessing the Company’s ability to recover its deferred tax

assets, the Company evaluated whether it is more likely than not that some portion or the entire deferred tax asset will be realized.

The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income in those periods in which temporary

differences become deductible and/or net operating losses can be utilized.

The Company considered all positive and negative evidence when

determining the amount of the net deferred tax assets that are more likely than not to be realized.

This evidence includes, but is not

limited to, historical earnings, scheduled reversal of taxable temporary differences, tax planning strategies and projected future taxable

A significant piece of objective negative evidence evaluated was cumulative loss incurred over the three-year period ended December

Such objective evidence limits the ability to consider other subjective evidence, such as the Company’s projections for

future growth.

Based on the weight of available evidence, the Company determined that its U.S.

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deferred tax assets.

The Company’s

valuation allowance increased by $ 114,572 during 2023.

The Company will continue to evaluate its deferred tax assets to determine whether

any changes in circumstances could affect the realization of their future benefit.

If it is determined in future periods that portions

of the Company’s deferred income tax assets satisfy the realization standards, the valuation allowance will be reduced accordingly.

As of December 31, 2023, the Company has U.S.

The Company’s valuation

allowance increased by $ 468,900 during 2024.

The Company will continue to evaluate its deferred tax assets to determine whether any changes

in circumstances could affect the realization of their future benefit.

If it is determined in future periods that portions of the Company’s

deferred income tax assets satisfy the realization standards, the valuation allowance will be reduced accordingly.

As of December 31, 2024, the Company had U.S.

federal net operating loss carryforwards of approximately $ 11.1 million, of which $ 10.3 million continue to be subject to a severe annual

limitation under Section 382.

Approximately $1.3 million of the $2.4 million not subject to limitation under Section 382 may be used

to offset 100% of future taxable income but expire in 2036-2037, if not utilized.

The remaining $1.1 million not subject to limitation

under Section 382 may be used to offset 80% of future taxable income and can be carried forward indefinitely.

The Company applies the applicable authoritative

guidance which prescribes a comprehensive model for the manner in which a company should recognize, measure, present and disclose in

its financial statements all material uncertain tax positions that the Company has taken or expects to take on a tax return.

As of December 31,

2023, the Company has no uncertain tax positions.

As such, there are no uncertain tax positions for which it is reasonably possible that

the total amounts of unrecognized tax benefits will significantly increase or decrease within twelve months from December 31, 2023.

PALTALK, INC.

limitation under Section 382 of the Internal Revenue Code of 1986, as amended (“Section 382”).

The remaining $ 0.8 million

not subject to limitation under Section 382 may be used to offset 80 % of future taxable income and can be carried forward indefinitely.

The Company applies the applicable

authoritative guidance which prescribes a comprehensive model for the manner in which a company should recognize, measure, present

and disclose in its financial statements all material uncertain tax positions that the Company has taken or expects to take on a tax

As of December 31, 2024, the Company had no uncertain tax positions.

As such, there are no uncertain tax positions for

which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly increase or decrease within

12 months from December 31, 2024.

The tax years 2021-2024 generally remain open to examination by major taxing jurisdictions to which the Company is subject.

INTELLIGENT PROTECTION MANAGEMENT CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The open tax years for the federal income tax

return are 2020 through 2023.

The state income tax returns have varying statutes of limitations.

The open tax years relating to any of

the Company’s federal and state net operating losses begin in 2020.

Expenses and Other Current Liabilities

Accrued Expenses and Other Current Liabilities, Continuing Operations

Accrued expenses and other current liabilities consisted of the following

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Total accrued expenses and other current liabilities

Stockholders’

Stockholders’ Equity

The Paltalk, Inc.

3 unchanged sentences

common stock may be issued pursuant to outstanding options awarded under the 2011 Plan;

however, no additional awards may be granted

under such plan.

however, no additional awards may be granted under

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 December 31, 2023, there

were 665,335 shares available for future issuance under the 2016 Plan.

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 December 31, 2024, there were 727,419 shares

available for future issuance under the 2016 Plan.

Stock Options

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historical volatilities beginning at the grant date and going back for a period of time equal to the expected life of the award.

Company estimates potential forfeitures of stock awards and adjusts recorded stock-based compensation expense accordingly.

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.

PALTALK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following tables summarize stock option activity during the year

ended December 31, 2023:

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 tables summarize stock option activity during the year ended December 31, 2024:

Outstanding at January 1, 2024

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Exercisable at December 31, 2024

At December 31, 2023, there was $ 338,194 of total

unrecognized compensation expense related to stock options, which is expected to be recognized over a weighted average period of 2.94

INTELLIGENT PROTECTION MANAGEMENT CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

At December 31, 2024, there was $ 92,257 of total unrecognized compensation

expense related to stock options, which is expected to be recognized over a weighted average period of 1.65 years.

On December 31, 2024, the aggregate intrinsic

1 unchanged sentence

On December 31, 2023, the aggregate

intrinsic value of stock options that were outstanding and exercisable was $ 9,360 .

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 year ended December 31, 2023, the

Company granted stock options to members of the Board of Directors (other than Mr.

Cook) to purchase an aggregate of 24,000 shares of

common stock at an exercise price of $ 1.94 per share.

The stock options vest in four equal quarterly installments on the last day of

each calendar quarter in 2023 and have a term of ten years.

In addition to the foregoing, the Company granted a stock option to Mr.

to purchase an aggregate of 100,000 shares of common stock at an exercise price of $ 1.86 .

The stock option vests in four equal annual

installments beginning on the first anniversary of the date of the grant and has a term of ten years.

During the year ended December

31, 2023, the Company also granted options to employees to purchase an aggregate of 25,000 shares of common stock.

These options have

a vesting date ranging between the grant date and up to four years, have a term of ten years and have an exercise price of $ 1.94 .

The aggregate fair value for the options granted

during the years ended December 31, 2023 and 2022 was $ 268,200 and $ 636,957 , respectively.

intrinsic value of stock options that were outstanding and exercisable was $ 136,971 and $ 79,371 , 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

During the year ended December 31, 2024, the Company granted stock options to members of the Company’s Board of Directors (the

“Board”) 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 10 years.

During the year ended December 31, 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 10 years and have an exercise price

The aggregate fair value for the options granted during the year ended December 31, 2024 and 2023 was $ 72,240 and $ 268,200 ,

respectively.

During the year ended

December 31, 2024, stock options representing the right to purchase 14,830 shares of common stock 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 year ended December 31, 2023.

Stock-based compensation expense for the Company’s

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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 and expiring on the one-year anniversary of such date.

Under the Stock Repurchase Plan, shares may be 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, and the Stock Repurchase Plan may be suspended or discontinued at any time.

The actual timing, number and value of shares repurchased will be determined by a committee of the Board of Directors at its discretion

and will depend 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.

The Stock Repurchase Plan expired on March 29, 2023 pursuant

to its terms and has not been renewed.

PALTALK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Board approved a stock repurchase plan for

up to $ 1,750,000 of the Company’s outstanding common stock, effective as of March 29, 2022 and expiring on the one-year anniversary

of such date.

During the year ended December 31, 2023, the Company purchased a total of 5,192 shares of common stock under the stock repurchase

plan for an aggregate purchase price of $ 7,213 , at an average price of $ 1.39 per share.

The stock repurchase plan expired on March 29,

2023 pursuant to its terms and has not been renewed.

As of December 31, 2024, the Company had 641,963

shares of its common stock classified as treasury shares on the Company’s consolidated balance sheets.

Income Per Share

Net (Loss) Income Per Share

Basic earnings and net (loss) income per share

5 unchanged sentences

incremental common shares issuable upon the exercise of stock options (using the treasury stock method).

To the extent stock options

are antidilutive, they are excluded from the calculation of diluted loss per share.

For the year ended December 31, 2023, 740,814 of

shares issuable upon the exercise of outstanding stock options were not included in the computation of diluted net loss per share from

operations because their inclusion would be antidilutive.

For the year ended December 31, 2023, no shares issuable upon the exercise

of outstanding stock options were included in the computation of diluted net income per share from operations because their inclusion

would be dilutive.

For the year ended December 31, 2022, 622,074 of shares issuable upon the exercise of outstanding stock options were

not included in the computation of diluted net loss per share from operations because their inclusion would be antidilutive.

year ended December 31, 2022, no shares issuable upon the exercise of outstanding stock options were included in the computation of diluted

net income per share from operations because their inclusion would be dilutive.

The following table summarizes the net loss per share calculation

for the periods presented:

To the extent stock options are

antidilutive, they are excluded from the calculation of diluted loss per share.

For the year ended December 31, 2024, 618,818 of shares

issuable upon the exercise of outstanding stock options were not included in the computation of diluted net loss per share from operations

because their inclusion would be antidilutive.

For the year ended December 31, 2023, 740,814 shares issuable upon the exercise of outstanding

stock options were included in the computation of diluted net income per share from operations because their inclusion would be dilutive.

INTELLIGENT PROTECTION MANAGEMENT CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table summarizes the net loss per

share calculation for the periods presented:

Net (loss) from continuing operations

$ ( 4,268,675 )

$ ( 2,687,008 )

Net (loss) income from discontinued operations

$ ( 4,157,534 )

Net (loss) from operations – basic and diluted

4 unchanged sentences

Per share data:

Basic from continuing operations

Diluted from continuing operations

Basic from discontinued operations

Diluted from discontinued operations

Basic from operations

Diluted from operations

Leases, Continuing Operations

Operating Leases

On June 7, 2016, the Company entered into a lease

agreement with Jericho Executive Center LLC for office space at 30 Jericho Executive Plaza in Jericho, New York, which commenced on September

1, 2016 and ran through November 30, 2021.

The Company’s monthly office rent payments under the lease are currently approximately

$ 7,081 per month.

On April 9, 2021, the Company 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.

modification resulted in an increase its ROU assets and lease liabilities of $ 0.2 million, using a discount rate of 2.30 %.

As of December 31, 2023, the Company had no long-term

leases that were classified as financing leases.

As of December 31, 2023, the Company did not have additional operating and financing

leases that had not yet commenced.

PALTALK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

At December 31, 2023, the Company had operating

lease liabilities of approximately $ 77,005 and right-of-use assets of approximately $ 77,005 , which are included in the consolidated balance

On April 9, 2021, the

Company entered into a lease extension agreement with Jericho Executive Center LLC (“JEC”) for its office space at 30 Jericho

Executive Plaza in Jericho, New York, which commenced on December 1, 2021.

On May 28, 2024, the Company entered into an additional lease

extension agreement with JEC, which extends the lease period by two years to November 30, 2026 .

Beginning on December 1, 2024, the

monthly rent totaled $ 6,850 per month.

The new extension gives the Company an option to terminate the second year in July 2025.

Company’s monthly office rent payments under the lease are currently approximately $ 7,081 per month.

As of December 31, 2024,

the Company had no long-term leases that were classified as financing leases and did not have additional operating or financing leases

that had not yet commenced.

As of December 31, 2024,

the Company had operating lease liabilities of approximately $ 74,490 and operating lease right-of-use assets of approximately $ 74,490 ,

which are included in the accompanying condensed consolidated balance sheets.

Total rent expense for the year ended December

5 unchanged sentences

operating leases for the periods presented:

Cash paid for amounts included in the measurement of operating lease

Cash paid for amounts included in the measurement of operating lease liabilities:

$ 82,176 $ 82,176

Weighted average assumptions:

6 unchanged sentences

Present value of minimum lease payments

and Contingencies

Patent Litigation

INTELLIGENT PROTECTION MANAGEMENT CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Commitments and Contingencies

Cisco WebEx Patent Litigation

On July 23, 2021, a wholly owned subsidiary of

the Company, Paltalk Holdings, Inc., filed a patent infringement lawsuit against WebEx Communications, Inc., Cisco WebEx LLC, and Cisco

Systems, Inc.

the Company, Paltalk Holdings, Inc., filed a patent infringement lawsuit (the “Lawsuit”) against WebEx Communications, Inc.,

Cisco WebEx LLC, and Cisco Systems, Inc.

(collectively, “Cisco”), in the U.S.

District Court for the Western District of Texas (the “Court”).

The Company alleges that certain of Cisco’s products have infringed U.S.

6,683,858, and that the Company is entitled

A Markman hearing took place on February 24,

On September 7, 2022, the United States Patent Office issued a reexamination of U.S.

6,683,858, and on January 19, 2023,

the Examiner issued an Ex Parte Reexamination Certificate, ending the reexamination and confirming the patentability of claims 1-10 of

On June 29, 2023, the Court held a pretrial conference and denied Cisco’s motion for summary judgment.

The trial is expected to be held in April of 2024.

District Court for the Western District of Texas

(the “Court”).

The Company alleged that certain of Cisco’s products have infringed U.S.

6,683,858, and that

the Company was entitled to damages.

On August 29, 2024, the jury awarded the Company

$ 65.7 million (the “Award”) in a jury verdict in connection with the Lawsuit.

On October 8, 2024, an order granting a

motion for final judgment was entered into in the Court in connection with Lawsuit in favor of the Company in the amount of the Award

and started the time for filing any post-trial motions or appeal.

The exact amount of the Award proceeds to be received

by the Company (including any interest related thereto) will be determined based on a number of factors and will reflect the deduction

of significant litigation-related expenses, including legal fees.

Consequently, the Company estimates that it would receive no more than

one third of the gross proceeds in connection with the Award, subject to post-trial proceedings (including any potential appellate proceedings

Cisco ManyCam Litigation

On March 7, 2025, Cisco Systems, Inc.

Technology, Inc.

filed a complaint against the Company in the U.S.

District Court for the District of Delaware, alleging that the Company’s

ManyCam software has infringed U.S.

8,830,293 and 8,941,708 and seeking damages and injunctive relief.

The Company intends

to vigorously defend itself against these claims.

The Company has not recorded any liability for this matter as it does not believe a

loss is probable, and it cannot estimate any reasonably possible loss or range of possible loss.

Legal Proceedings

3 unchanged sentences

based on the probability of an unfavorable outcome and the reasonability of an estimable loss.

No reserve was deemed necessary as of

December 31, 2023.

No reserve was deemed necessary as of December

Subsequent Events

NTS Acquisition

On January 2, 2025, the Company closed the Acquisition

pursuant to which the Company acquired NTS through a two-step merger process.

The aggregate consideration delivered by the Company to

Newtek at the Acquisition Closing consisted of (i) $ 4,000,000 in cash and (ii) 4,000,000 shares of Series A Preferred Stock.

to the Acquisition Closing Consideration, the Acquisition Agreement provides that Newtek is entitled to receive an amount up to $ 5,000,000

(the “Acquisition Earn-Out Amount”) based on the Company’s achievement of certain cumulative average adjusted EBITDA

thresholds for the 2025 and 2026 fiscal years.

The Acquisition Earn-Out Amount may be paid, in the Company’s sole discretion, in

cash (the “Acquisition Earn-Out Cash Consideration”), in shares of Series A Preferred Stock (the “Acquisition Earn-Out

Stock Consideration”) or in a combination thereof.

Pursuant to the Acquisition Agreement, to the extent that all or a portion of

the Acquisition Earn-Out Amount is paid in shares of Series A Preferred Stock, the number of shares of Series A Preferred Stock to be

issued to Newtek will be calculated based on the average of the daily volume weighted average prices of the Company’s common stock

during each trading day during a 60 calendar-day period ending on December 31, 2026;

provided, that in no event shall such price be less

than $ 1.00 .

Pursuant to the Acquisition Agreement, if the

issuance of the Acquisition 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 one-third of the Company’s total equity (the “Total Equity Cap”), then the number of shares

of Series A Preferred Stock issuable as Acquisition Earn-Out Stock Consideration will be adjusted so that the Company will issue to Newtek

the maximum number of shares of Series A Preferred Stock that would not cause Newtek’s total equity to exceed the Total Equity Cap,

with a corresponding increase to the Acquisition Earn-Out Cash Consideration.

INTELLIGENT PROTECTION MANAGEMENT CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Divestiture

On January 2, 2025, the Company completed the

sale to Meteor Mobile of the Transferred Assets.

The consideration delivered by Meteor Mobile to the Company at the closing of the Divestiture

consisted of (i) $ 1,350,000 in cash and (ii) the assumption of all of the liabilities of the Sellers arising out of, or relating to, the

Business or the Transferred Assets, other than certain excluded liabilities.

In addition to the Divestiture Closing Consideration, the

Company is entitled to receive, with respect to each Earn-Out Period, as defined and described below, certain payments in cash based on

the cash revenue, net of any refunds, received by Meteor Mobile that is attributable to the Business (such cash revenue, the “Legacy

Business Revenue”), as follows:

● from the six-month period beginning on July 1, 2025 and ending on December 31, 2025 (“Earn-Out Period 1”), an amount equal to (i) for any Legacy Business Revenue greater than or equal to $ 3,500,000 and less than $ 4,250,000 , the amount of such Legacy Business Revenue multiplied by 0.30 plus (ii) for any Legacy Business Revenue greater than or equal to $ 4,250,000 , the amount of such Legacy Business Revenue in excess of $ 4,250,000 multiplied by 0.40 ;

● from each of the twelve-month period beginning on January 1, 2026 and ending on December 31, 2026 (“Earn-Out Period 2”), the twelve-month period beginning on January 1, 2027 and ending on December 31, 2027 (“Earn-Out Period 3”), and the twelve-month period beginning on January 1, 2028 and ending on December 31, 2028 (“Earn-Out Period 4” and collectively with Earn-Out Period 1, Earn-Out Period 2 and Earn-Out Period 3, the “Earn-Out Periods”), an amount equal to (i) for any Legacy Business Revenue greater than or equal to $ 7,000,000 and less than $ 8,500,000 , the amount of such Legacy Business Revenue multiplied by 0.30 plus (ii) for any Legacy Business Revenue greater than or equal to $ 8,500,000 , the amount of such Legacy Business Revenue in excess of $ 8,500,000 multiplied by 0.40 (the aggregate amount, if any, earned during the Earn-Out Periods, the “Divestiture Earn-Out Amount”).

In the event of a change of control (as defined

in the Divestiture Agreement) of Meteor Mobile during any of the Earn-Out Periods, the Company is entitled to receive an acceleration

payment in cash, net of any Divestiture Earn-Out Amounts previously paid to us (the “Acceleration Payment”).

If any of the

Transferred Assets are sold independently from the other assets of Meteor Mobile, the Company will be entitled to (i) 50 % of the aggregate

consideration paid to Meteor Mobile for the Transferred Assets minus (ii) the aggregate amount of any Divestiture Earn-Out Amounts received

by the Sellers by the date of the change of control, minus (iii) the aggregate amount of any Acceleration Payments previously paid through

If any of the Transferred Assets are sold contemporaneously with other assets of Meteor Mobile, the Company is entitled to

(x) the aggregate consideration paid to Meteor Mobile for the Transferred Assets multiplied by the ratio of the trailing 12-month EBITDA

of the Transferred Assets sold and the EBITDA of all assets sold minus (y) the aggregate amount of any Divestiture Earn-Out Amounts received

by the Sellers by the date of the change of control, minus (z) the aggregate amount of any Acceleration Payments previously paid through

The minimum Acceleration Payment for the sale of “Paltalk,” “Camfrog” and “Vumber” is $ 1,650,000 ,

$ 450,000 and $ 300,000 , respectively, and the Acceleration Payments payable to the Company are capped at $ 5,000,000 in the aggregate.

Management has evaluated subsequent events or

1 unchanged sentence

are required to be disclosed herein.

CHANGES IN AND

DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

CHANGES IN AND DISAGREEMENTS WITH

ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

As previously disclosed, on March 18, 2024, the

audit committee of the Board approved the dismissal of Marcum LLP (“Marcum”), as the Company’s independent registered

public accounting firm, effective as of March 18, 2024, and informed Marcum of such dismissal on the date thereof.

The reports of Marcum on the Company’s consolidated

financial statements for the two most recent fiscal years ended December 31, 2023 and 2022, did not contain an adverse opinion or a disclaimer

of opinion and were not qualified or modified as to uncertainty, audit scope, or accounting principles.

During the fiscal years ended December 31, 2023

and 2022, and the subsequent interim period through March 18, 2024, (i) there were no disagreements, as defined in Item 304(a)(1)(iv)

of Regulation S-K, with Marcum on any matter of accounting principles or practices, financial statement disclosure, or auditing scope

or procedure, which disagreements, if not resolved to the satisfaction of Marcum, would have caused Marcum to make reference to the subject

matter of the disagreements in connection with its reports on the Company’s consolidated financial statements for such period, and

(ii) there were no “reportable events,” as defined in Item 304(a)(1)(v) of Regulation S-K.

On March 18, 2024, the audit committee of the

Board approved the engagement of Grassi & Co., CPAs, P.C.

(“Grassi”) as the Company’s independent registered public

accounting firm for the fiscal year ending December 31, 2024, effective as of such date.

During the fiscal years ended December 31, 2023

and 2022, and the subsequent interim period through March 18, 2024, neither the Company nor anyone acting on its behalf has consulted

with Grassi regarding (i) the application of accounting principles to any specified transaction, either completed or proposed, or the

type of audit opinion that might be rendered on the Company’s consolidated financial statements, and neither a written report nor

oral advice was provided to the Company that Grassi concluded was an important factor considered by the Company in reaching a decision

as to any accounting, auditing, or financial reporting issue, or (ii) any matter that was either the subject of a “disagreement,”

as defined in Item 304(a)(1)(iv) of Regulation S-K, or a “reportable event,” as defined in Item 304(a)(1)(v) of Regulation

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data