What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2021-03-23 compared with 2020-03-24 · 955 added, 922 removed, 56 unchanged (97% of the section changed)

1 unchanged sentence

AND SUPPLEMENTARY DATA

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets as of December 31, 2019 and 2018

Consolidated Statements of Operations for the Years Ended December 31, 2019 and 2018

Consolidated Statements of Changes in Stockholders’

of Independent Registered Public Accounting Firm

Balance Sheets as of December 31, 2020 and 2019

Statements of Operations for the Years Ended December 31, 2020 and 2019

Statements of Changes in Stockholders’

Equity for the Years Ended December 31, 2020 and 2019

Consolidated Statements of Cash Flows for the Years Ended December 31, 2019 and 2018

Notes to Consolidated Financial Statements

REPORT OF INDEPENDENT REGISTERED PUBLIC

ACCOUNTING FIRM

To the Shareholders and Board of Directors

of PeerStream, Inc.

Statements of Cash Flows for the Years Ended December 31, 2020 and 2019

to Consolidated Financial Statements

OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

the Shareholders and Board of Directors

Paltalk, Inc.

and Subsidiaries

Opinion on the Financial Statements

We have audited the accompanying consolidated

balance sheets of Peerstream, Inc.

and Subsidiaries (the “Company”) as of December 31, 2019 and 2018, and 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, 2019, 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, 2019

and 2018, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2019,

in conformity with accounting principles generally accepted in the United States of America.

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 audits.

We 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 audits 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.

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 statements.

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.

/s/ Marcum LLP

We have served as the Company’s auditor

Melville, New York

March 24, 2020

PEERSTREAM, INC.

CONSOLIDATED BALANCE SHEETS

on the Financial Statements

have audited the accompanying consolidated balance sheets of Paltalk, Inc.

and Subsidiaries (the “Company”) as of

December 31, 2020 and 2019, 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, 2020, 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, 2020 and 2019, and the results of its operations and its cash flows for each of the

two years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States

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 audits.

We 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

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

conducted our audits 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

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial

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.

we express no such opinion.

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 statements.

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.

Critical Audit Matters

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.

of the Accounting for and Disclosure of Digital Tokens and Related Technology Service Revenue

As disclosed in Notes 2 and

7 to the consolidated financial statements, the Company’s digital tokens, which mainly consist of utility tokens (“Props”),

held as of December 31, 2020, are accounted for as indefinite-lived intangible assets, and have been included in non-current assets

on the consolidated balance sheet.

The Company’s digital tokens as of December 31, 2020 totaled $439,145.

Also, as disclosed in Note 2 and 7 to the

consolidated financial statements, during the year ended December 31, 2020 the Company entered into a contract with a customer

to provide technology services, which included the Company agreeing to serve as a launch partner, integrate the customer’s

Props infrastructure into the Company’s multimedia social applications, perform side-chain validator services and operate

a loyalty program for the customer.

Additionally, the Company was to provide Props under the loyalty platform to its customers

based on their usage and activities on its multimedia social applications.

In exchange for these services, the revenue earned by

the Company was to be paid in Props.

The Props were recorded at their estimated fair value on the transaction dates.

In connection

with the agreement, the Company recognized revenue related to the technology services of $525,748, of which $210,000 was included

as a receivable as of December 31, 2020.

Digital tokens owed to the Company’s customers under the loyalty program as of December

31, 2020 totaled $123,397 and were recorded as a current liability.

We identified the accounting for and disclosure

of digital tokens and the related technology service revenue as a critical audit matter for the following reasons.

Currently, no

authoritative guidance exists for the accounting for and disclosure of digital assets in accordance with accounting principles

generally accepted in the United States (“GAAP”).

The Company’s management has exercised significant judgment

in their determination of how existing GAAP should be applied to the accounting for digital assets, the related technology service

revenue, the associated financial statement presentation and accompanying footnote disclosures.

Further, specialists were required

to perform audit procedures to test the valuation of the Props token used in the determination of the Company’s recognition

of technology service revenue, and with the associated carrying amounts of the digital token assets and liability.

primary procedures we performed to address this critical audit matter included the following:

● We evaluated management’s rationale for the application of Accounting Standards Codification (“ASC”)

350 to account for its digital tokens held and application of ASC 606 for the related technology service revenue;

● We evaluated management’s basis for recording digital token intangible assets and receivables as

a non-current asset, and digital tokens payable as a current liability on the balance sheet;

● We evaluated management’s disclosures of its digital token activity in the financial statement footnotes;

● We confirmed digital asset receivables and payables with the Company’s customer and examined supporting

documentation and evidence of Props earned by the Company and its customers;

● We tested the digital token activity by comparing the Company’s digital tokens wallet records to

publicly available blockchain records;

● We performed testing procedures to gain reasonable assurance that the digital wallets and associated addresses

were owned by the Company;

● We utilized our internal valuation specialist to test the valuation methods and assumptions used by management

to estimate the value of the digital tokens earned and held.

have served as the Company’s auditor since 2016.

BALANCE SHEETS

Current assets:

Cash and cash equivalents

Credit card holdback receivable

Accounts receivable, net of allowances and reserves of $23,832 and $34,546, as of December 31, 2019 and 2018, respectively

Prepaid expense and other current assets

Current assets held for sale

Total current assets

Operating lease right-of-use asset

Property and equipment, net

Intangible assets, net

Digital tokens

Noncurrent assets held for sale

Liabilities and stockholders’

and cash equivalents

receivable, net of allowances of $3,648 and $23,832, as of December 31, 2020 and 2019, respectively

expense and other current assets

current assets

tokens receivable

lease right-of-use asset

and equipment, net

and stockholders’

expenses and other current liabilities

lease liabilities, current portion

tokens payable

debt, current portion

subscription revenue

current liabilities

Accounts payable

Accrued expenses and other current liabilities

Current portion of operating lease liabilities

Deferred subscription revenue

Deferred technology service revenue

Current liabilities held for sale

Total current liabilities

Operating lease liabilities, non-current portion

Total liabilities

Commitments and contingencies

lease liabilities, non-current portion

debt, non-current portion

and contingencies

Stockholders’

Common stock, $0.001 par value, 25,000,000 shares authorized, 6,878,904 and 6,868,679 shares issued and outstanding as of December 31, 2019 and 2018, respectively

Treasury stock, 1,900 and no shares, at par as of December 31, 2019 and 2018, respectively

Additional paid-in capital

Accumulated deficit

stock, $0.001 par value, 25,000,000 shares authorized, 6,916,404 and 6,878,904 shares issued and 6,906,454 and 6,877,004 shares

outstanding as of December 31, 2020 and 2019, respectively

Treasury stock,

9,950 and 1,900 shares, at par as of December 31, 2020 and 2019, respectively

paid-in capital

(11,729,089 )

Total stockholders’

Total liabilities and stockholders’

The accompanying notes are an integral

part of these consolidated financial statements.

PEERSTREAM, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

Advertising revenue

(13,100,351 )

stockholders’

liabilities and stockholders’

accompanying notes are an integral part of these consolidated financial statements.

STATEMENTS OF OPERATIONS

service revenue

Total revenue

Costs and expenses

Costs of revenue

Sales and marketing

Product development

General and administrative

and marketing expense

development expense

and administrative expense

loss on goodwill

Total costs and

Income (loss) from continuing operations

Interest income

costs and expenses

(loss) from continuing operations

from sale of Secured Communications Assets

loss on digital tokens

Loss from continuing operations before

provision for income taxes

Benefit (expense)

for income taxes

Net loss from continuing

Discontinued Operations:

Gain on sale from discontinued operations

Loss from discontinued operations

Income tax expense

from discontinued operations

Net income (loss)

(loss) from continuing operations before provision for income taxes

tax (expense) benefit

income (loss) from continuing operations

on sale from discontinued operations

from discontinued operations

Basic net income (loss) per share of

common stock:

Continuing operations

Net loss per share of common stock

Diluted net income (loss) per share

of common stock:

Continuing operations

Net loss per share of common stock

Weighted average number of shares of

common stock used in calculating net loss per share of common stock:

Basic and diluted

continuing operations

Basic and diluted

discontinued operations

The accompanying notes are an integral

part of these consolidated financial statements.

PEERSTREAM, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN

STOCKHOLDERS’

tax expense from discontinued operations

income from discontinued operations

income (loss)

net income (loss) per share of common stock:

income (loss) per share of common stock

net income (loss) per share of common stock:

loss per share of common stock

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

accompanying notes are an integral part of these consolidated financial statements.

STATEMENTS OF CHANGES IN STOCKHOLDERS’

Stockholders’

Balance on January 1, 2018

Stock-based compensation expense for restricted stock awards and stock options

Reconciliation of shares issued in stock-based compensation arrangement

Issuance of common stock for stock option exercises

Surrender of common stock for tax withholding

Balance on December 31, 2018

at December 31, 2018

$ (4,720,291 )

Stock-based compensation expense for restricted stock awards and stock options

Issuance of common stock for consulting services

Repurchased of common stock

Balance on December 31, 2019

compensation expense for restricted stock awards and stock options

of common stock for consulting services

of common stock

at December 31, 2019

$ (13,100,351 )

The accompanying notes are an integral

part of these consolidated financial statements.

PEERSTREAM, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Cash flows from operating activities:

compensation expense

of common stock for consulting services

of common stock

at December 31, 2020

$ (11,729,089 )

accompanying notes are an integral part of these consolidated financial statements.

STATEMENTS OF CASH FLOWS

Cash flows from operating activities:

income (loss)

$ (8,380,060 )

Income (loss) from discontinued operations

Income from discontinued operations

(loss) from continuing operations

Adjustments to reconcile net loss from continuing operations to net cash (used in) provided by operating activities of continuing operations:

Depreciation of property and equipment

Amortization of intangible assets

Amortization of operating lease right-of-use assets

Reconciliation of shares issued in stock-based compensation arrangement

Surrender of common stock for tax withholding

Stock-based compensation

Common stock issued for consulting services

Bad debt expense

Digital tokens received as payment for services

Impairment loss on goodwill

Impairment loss on digital tokens

Realized gain from the sale of digital tokens

Changes in operating assets and liabilities:

Credit card holdback receivable

Accounts receivable

Operating lease liability

Prepaid expense and other current assets

Accounts payable, accrued expenses and other current liabilities

Deferred subscription revenue

Deferred technology service revenue

Net cash (used in) provided by continuing operating activities

Net cash used in discontinued operating activities

Net cash (used in) provided by operating activities

Cash flows from investing activities:

Purchases of property and equipment

Proceeds from the sale of digital tokens

Net cash used in continuing investing activities

Net cash provided by discontinued investing activities

Net cash provided by (used in) investing activities

Cash flows from financing activities:

Proceeds from issuance of common stock for stock option exercises

Purchase of treasury stock

Net cash provided by (used in) continuing financing activities

Net cash provided by discontinued financing activities

Net cash provided by (used in) financing activities

Net increase (decrease) in cash and cash equivalents

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:

Operating lease right-of-use asset and liability

The accompanying notes are an integral

part of these consolidated financial statements.

PEERSTREAM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Organization and Description of Business

The accompanying consolidated financial

statements include PeerStream, Inc.

to reconcile net income (loss) from continuing operations to net cash provided by (used in) operating activities of continuing

of property and equipment

of intangible assets

of operating lease right-of-use assets

on lease termination

on disposal of property and equipment

of note receivable

stock issued for consulting services

loss on goodwill

loss on digital tokens

(gain) loss from the sale of digital tokens

in operating assets and liabilities:

card holdback receivable

tokens receivable

lease liability

tokens payable

expense and other current assets

payable, accrued expenses and other current liabilities

subscription revenue

technology service revenue

cash provided by (used in) continuing operating activities

cash used in discontinued operating activities

cash provided by (used in) operating activities

flows from investing activities:

for property and equipment, including website development, net

from Secured Communications Assets

from the sale of digital tokens

cash provided by (used in) continuing investing activities

cash provided by discontinued investing activities

cash provided by investing activities

flows from financing activities:

of treasury stock

cash provided by (used in) financing activities

increase (decrease) in cash and cash equivalents

of cash and cash equivalents at beginning of period

of cash and cash equivalents at end of period

accompanying notes are an integral part of these consolidated financial statements.

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 and Vumber LLC (collectively, the “Company,”

“we,”

“our”

or “us”).

The Company is a communications software

innovator that power multimedia social applications.

The Company has also developed a secure business communication solution for

use worldwide.

Our product portfolio includes Paltalk and Camfrog, which together host one of the world’s largest collections

of video-based communities.

Our other products include Tinychat and Vumber.

The Company has over 20 year history of technology

innovation and holds 18 patents.

Software, Inc.,

Paltalk Software Inc., Paltalk Holdings, Inc., Tiny Acquisition Inc., Camshare, Inc., Fire Talk LLC and Vumber LLC (collectively,

the “Company”).

May 15, 2020, the Company changed its name from “PeerStream, Inc.”

to “Paltalk, Inc.”

In connection with

the name change, the Company changed its trading symbol on the OTCQB Marketplace from “PEER”

to “PALT.”

Company is a communications software innovator that powers multimedia social applications.

The Company’s product portfolio

includes Paltalk and Camfrog, which together host a large collection of video-based communities.

The Company’s other products

include Tinychat and Vumber.

The Company has an over 20-year history of technology innovation and holds 18 patents.

December 2019, a novel strain of coronavirus (“COVID-19”) was reported to have surfaced in Wuhan, China, and has since

reached multiple other countries, including the United States, resulting in government-imposed quarantines, travel restrictions

and other public health safety measures in affected countries.

The various precautionary measures taken by many governmental authorities

around the world in order to limit the spread of COVID-19 has had, and could continue to have, an adverse effect on the global

markets and its economy, including on the availability and pricing of employees and resources, and other aspects of the global

Although the Company cannot predict the impact that the COVID-19 pandemic will have on its business or results of operations

in future periods, to date, the Company’s core multimedia social applications have been able to support the increased demand

the Company has experienced.

On May 3, 2020, to help ensure adequate liquidity in light of the uncertainties posed by the COVID-19

pandemic, the Company 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”) under the Small Business Administration (“SBA”) Paycheck

Protection Program under the recently enacted Coronavirus Aid, Relief and Economic Security Act (“CARES Act”).

January 13, 2021, the Note was fully forgiven by the SBA and the Lender in compliance with the provisions of the CARES Act.

Summary of Significant

Accounting Policies

Principles of Consolidation

The accompanying consolidated financial

statements include the accounts of the Company and its wholly owned subsidiaries and were prepared in conformity with accounting principles generally accepted in the United States

of America (“GAAP”) and with the requirements of the Security and Exchange Commission (“SEC”).

All intercompany balances and transactions have been eliminated upon consolidation.

Significant Estimates and Assumptions

The preparation of financial statements

in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities

at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period.

Significant estimates relied upon in

preparing these financial statements include the estimates used to determine the fair value of the stock options issued in

share based payment arrangements, collectability of the Company’s accounts receivable, measurements of proportional

performance under certain service contracts, subscription revenues net of refunds, credits, and known and estimated credit card chargebacks, the

valuation allowance on deferred tax assets, fair value of digital tokens and impairment assessment of goodwill.

evaluates these estimates on an ongoing basis.

Changes in estimates are recorded in the period in which they become known.

The Company bases estimates on historical experience and various other assumptions that it believes to be reasonable under

the circumstances.

of Consolidation

accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries and were

prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and

with the requirements of the Security and Exchange Commission (“SEC”).

All intercompany balances and transactions

have been eliminated upon consolidation.

Estimates and Assumptions

preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect

the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of

revenue and expenses during the reporting period.

estimates relied upon in preparing these financial statements include the estimates used to determine the fair value of the stock

options issued in share-based payment arrangements, collectability of the Company’s accounts receivable, measurements of

proportional performance under certain service contracts, subscription revenues net of refunds, credits, and known and estimated

credit card chargebacks, the valuation allowance on deferred tax assets, fair value of digital tokens and impairment assessment

Management evaluates these estimates on an ongoing basis.

Changes in estimates are recorded in the period in which

they become known.

The Company bases estimates on historical experience and various other assumptions that it believes to be reasonable

under the circumstances.

Actual results may differ from the Company’s estimates.

Revenue Recognition

In accordance with Accounting Standards

Codification (“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 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 year ended December 31, 2019 and 2018, subscriptions were offered in durations

of one-, three-, six- and twelve- 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.

unearned portion of subscription revenue is presented as deferred revenue in the accompanying consolidated balance sheets.

deferred revenue at December 31, 2018 was $1,468,571, of which $1,468,571 was subsequently recognized as subscription revenue

during the year ended December 31, 2019.

TO CONSOLIDATED FINANCIAL STATEMENTS

Value Measurements

fair value framework under the guidance issued by the Financial Accounting Standards

Board (“FASB’”) requires the categorization of assets and liabilities

into three levels based upon the assumptions used to measure the assets or liabilities.

Level 1 provides the most reliable measure of fair value, whereas Level 3, if applicable,

would generally require significant management judgment.

The three levels for categorizing

assets and liabilities under the fair value measurement requirements are as follows:

measurement of the asset or liability using observable inputs such as quoted prices in active markets for identical assets

or liabilities;

measurement of the asset or liability using inputs other than quoted prices that are observable for the applicable asset or

liability, either directly or indirectly, such as quoted prices for similar (as opposed to identical) assets or liabilities

in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active;

measurement of the asset or liability using unobservable inputs that reflect the Company’s own assumptions regarding

the applicable asset or liability.

Company reviews the appropriateness of fair value measurements including validation processes, and the reconciliation of period-over-period

fluctuations based on changes in key market inputs.

All fair value measurements are subject to the Company’s analysis.

and approval by management is required as part of the validation process.

carrying amounts of the Company’s cash and cash equivalents, accounts receivable and accounts payable, approximate fair

value due to the short-term nature of these instruments.

accordance with Accounting Standards Codification (“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

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 duration of one year or less.

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, 2020 and 2019, subscriptions

were offered in durations of one-, three-, six- and twelve- 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, 2019 was $1,829,493, of which $1,829,493 was subsequently recognized as subscription

revenue during the year ended December 31, 2020.

The ending balance of deferred revenue at December 31, 2020 was $2,058,721.

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 of purchase.

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 of purchase.

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

account and are under the users’

and are under the users’

Virtual gift revenue is recognized upon the users’

utilization of such at the fixed transaction price and included

in subscription revenue in the accompanying consolidated statements of operations.

Virtual gift revenue for the year ended December 31,

2019 and 2018 was $5,079,837 and $7,422,884, respectively.

The ending balance of deferred revenue at December 31, 2019 was

Advertising Revenue

The Company generates advertising revenue

from the display of advertisements on its products through contractual agreements with third parties that are based on the number

of advertising impressions delivered.

Measurements of impressions include when a customer clicks an advertisement (CPC basis),

views an advertisement impression (CPM basis), or registers for an external website via an advertisement by clicking on or through

the application (CPA basis).

Advertising revenue is dependent upon traffic as well as the advertising inventory placed on the

Company’s products.

Technology Service Revenue

Revenue under the Company’s technology services agreement

(the “ProximaX Agreement”) with ProximaX Limited (“ProximaX”) was recognized based upon proportional performance

using labor hours as the unit of measurement.

Pursuant to the terms of the ProximaX Agreement, ProximaX agreed to pay the Company,

among other things, up to an aggregate of $10.0 million of cash or certain highly liquid cryptocurrencies in exchange for the Company’s

services, $5.0 million of which was paid in May 2018, $2.5 million of which was due upon completion the second development milestone

set forth in the ProximaX Agreement and $2.5 million of which was due upon completion of the third development milestone set forth

in the ProximaX Agreement.

The contractual upfront fee was paid in the Ethereum cryptocurrency and subsequently converted into

The upfront fee also included 216.0 million XPX tokens.

The total upfront fee was recognized as revenue under the

input method based on proportional performance using labor hours as the unit of measurement.

In the second quarter of 2019, the Company

completed, and ProximaX accepted delivery of, the work constituting the second development milestone under the ProximaX Agreement.

During the final stages of delivery of the second milestone, ProximaX informed the Company that capital constraints made it unable

to pay the Company the $2.5 million as stipulated under the ProximaX Agreement.

Accordingly, the Company and ProximaX entered

into an agreement, effective June 24, 2019, to terminate the ProximaX Agreement (the “Termination Agreement”) and

provide for payment terms for the remaining $2.5 million due under the ProximaX Agreement.

The portion of the upfront fee that

remained unrecognized as of the termination of the ProximaX Agreement was $1.6 million and was recognized as revenue upon such

termination, in addition to the $1.7 million of revenue recognized in the first quarter of 2019.

Since there is no assurance of

collectability on the remaining payments, revenue is being recognized as the payments under the Termination Agreement are received.

For the year ended December 31, 2019, the Company recognized $22.4 thousand in revenue in connection with payments received.

Digital Tokens

Digital tokens consist of XPX tokens received

in connection with the ProximaX Agreement.

Given that there is limited precedent regarding the classification and measurement

of cryptocurrencies and other digital tokens under current GAAP, the Company has determined to account for these tokens as indefinite-lived

intangible assets in accordance with ASC 350, Intangibles-Goodwill and Other until further guidance is issued by the FASB.

Indefinite-lived intangible assets are

recorded at cost and are not subject to amortization, but shall be tested for impairment annually and more frequently if events

or changes in circumstances indicate that it is more likely than not that the asset is impaired.

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.

revenue was $5,188,858 and $5,079,837 for the years ended December 31, 2020 and 2019, respectively.

The ending balance of deferred

revenue from virtual gifts at December 31, 2020 and 2019 was $348,677 and $411,326, respectively.

TO CONSOLIDATED FINANCIAL STATEMENTS

Company generates advertising revenue from the display of advertisements on its products through contractual agreements with third

parties that are based on the number of advertising impressions delivered.

Measurements of impressions include when a customer

clicks an advertisement (CPC basis), views an advertisement impression (CPM basis), or registers for an external website via an

advertisement by clicking on or through the application (CPA basis).

Advertising revenue is dependent upon traffic as well as

the advertising inventory placed on the Company’s products.

Service Revenue

Communications .

During 2019 and the first quarter of 2020, technology service revenue consisted of revenue that was recognized

under the Company’s technology services agreement (the “ProximaX Agreement”) with ProximaX Limited (“ProximaX”)

and was recognized based upon proportional performance using labor hours as the unit of measurement.

Pursuant to the terms of

the ProximaX Agreement, ProximaX agreed to pay the Company, among other things, up to an aggregate of $10.0 million of cash or

certain highly liquid cryptocurrencies in exchange for the Company’s services, $5.0 million of which was paid in May 2018,

$2.5 million of which was due upon completion the second development milestone set forth in the ProximaX Agreement and $2.5 million

of which was due upon completion of the third development milestone set forth in the ProximaX Agreement.

June 24, 2019, the Company and ProximaX entered into an agreement to terminate the ProximaX Agreement (the “Termination

Agreement”) and provide for payment terms for the remaining $2.5 million due under the ProximaX Agreement.

The portion of

the upfront fee that remained unrecognized as of the termination of the ProximaX Agreement was $1.6 million and was recognized

as revenue upon such termination, in addition to the $1.7 million of revenue recognized in the first quarter of 2019.

is no assurance of collectability on the remaining payments, revenue is being recognized as the payments under the Termination

Agreement are received.

For the year ended December 31, 2020, the Company recognized approximately $15.0 thousand in revenue in

connection with payments received under the Termination Agreement.

July 23, 2020, the Company completed an asset sale in relation to the secure communications

See Note 15, Sale of Secure Communication Assets, to the consolidated financial

statements for further information.

The Company does not expect to continue to pursue

secure communications products or technology implementation services as part of its overall

business strategy.

Partnerships .

During the second and third quarters of 2020, the Company recorded technology service revenue in connection

with its agreement to serve as a launch partner with YouNow, Inc.

(“YouNow”) and to integrate YouNow’s props

infrastructure (the “Props platform”) into its Camfrog and Paltalk applications (as amended, the “YouNow Agreement”).

to the terms of the YouNow Agreement, YouNow agreed to pay the Company, in exchange for

the Company’s services, an aggregate of 10.5 million cryptographic props tokens

(“Props tokens”) upon the achievement of certain milestones as follows:

3.0 million Props tokens upon execution of the YouNow Agreement, (ii) 4.0 million Props

tokens upon the integration of the Props platform in the Company’s Camfrog application

and (iii) 3.5 million Props tokens due upon the integration of the Props platform in

the Company’s Paltalk application.

In determining the value of the contract, the

Company converted the Props tokens into U.S.

dollars using an independent third-party

The Props tokens were estimated to have a price equal to $0.02 per token (see

Note 7 for additional information on the fair value of the Props tokens) at the contract

inception date.

The total contract value to be recognized was estimated to be $210,000,

which is recognized on the completion dates of the integration services performed.

upfront fee is recognized as revenue under the output method based on the direct measurements of the value of services transferred

to date to the customer, relative to the remaining services under the contract.

During the year ended December 31, 2020, the Company

recognized $60,000 of the upfront fee and $150,000 from the completion of the first and second integration milestones under technology

service revenue in the consolidated statements of operations and digital tokens receivable in the consolidated balance sheets.

TO CONSOLIDATED FINANCIAL STATEMENTS

In addition, during the year ended December 31, 2020, the Company

received 1.1 million Props tokens for a validator service and 13.5 million Props tokens under YouNow’s loyalty Props platform

that was implemented on the Company’s Paltalk and Camfrog applications.

The loyalty platform is used to drive engagement

and empower users financially by providing users with the ability to earn Props tokens while using the Paltalk and Camfrog applications.

The number of Props tokens earned by users for the year ended December 31, 2020 was 3.6 million, which is recorded under digital

tokens payable in the consolidated balance sheets, and the net revenue earned is recorded under technology service revenue in the

consolidated statements of operations.

the determining the value of the revenue for the validator service and digital tokens earned through the loyalty platform, the

Company converted the Props tokens into U.S.

dollars using an independent third-party valuation (see Note 7 for additional information

on the fair value of the Props tokens).

The total net revenue value to be recognized was estimated to be $315,748 which is recognized

to the Company’s estimates may result in increases or decreases to revenues and income and are reflected in the consolidated

financial statements in the periods in which they are first identified.

If the Company’s estimates indicate that a contract

loss will be incurred, a loss provision is recorded in the period in which the loss first becomes probable and can be reasonably

Contract losses are the amount by which the estimated costs of the contract exceed the estimated total revenue that

will be generated by the contract and are included in cost of revenues in the Company’s consolidated statements of operations.

There were no contract losses for the periods presented.

December 31, 2019, digital tokens consisted of XPX tokens received in connection with the ProximaX Agreement.

At December 31,

2020, digital tokens and digital tokens receivable consist of Props tokens received in connection with the YouNow Agreement.

that there is limited precedent regarding the classification and measurement of cryptocurrencies and other digital tokens under

current GAAP, management has exercised significant judgment in determining the appropriate accounting treatment and in the event

that authoritative guidance is enacted by the FASB, the Company may be required to change its policies, which could have an effect

on the Company’s consolidated financial position and results from operations.

Company determined to account for digital tokens as indefinite-lived intangible assets in accordance with ASC 350, Intangibles-Goodwill

Indefinite-lived intangible assets are not amortized but assessed for impairment annually, or more frequently when

events or changes in circumstances occur indicating that it is more likely than not that the indefinite-lived asset is impaired.

Impairment exists when the carrying amount exceeds its fair value, which is measured using the quoted price of the digital token

at the time its fair value is being measured.

testing for impairment, the Company has the option to first perform a qualitative assessment to determine whether it is more likely

than not that an impairment exists.

If it is determined that it is not more likely than not that an impairment exists, a quantitative

impairment test is not necessary.

Otherwise, it is required to perform a quantitative impairment test.

If, at the time of an impairment

test, the carrying amount of an intangible asset exceeds its fair value, an impairment loss in an amount equal to the excess is

Fair value of the digital tokens had been based on the quoted market prices for the XPX tokens on the Kryptono Exchange.

In September 2019, the Kryptono Exchange announced that as part of its periodic review of its listed digital assets it was determined

that ProximaX no longer met its standards for continued listing.

Accordingly, it delisted and ceased trading for XPX tokens on

October 4, 2019.

Because the value of XPX as listed on other exchanges had declined significantly, the Company recorded an impairment

charge in the amount of $625,368 which is reported as a component of other income and expenses in the accompanying consolidated

statements of operations for the year ended December 31, 2019.

For the year ended December 31, 2019, the Company sold

61,716,857 digital tokens for $130,290.

The gain of approximately $71,000 was recorded in the consolidated financial statements.

Cost of revenue

Cost of revenue consists primarily of

compensation (including stock-based compensation) and other employee-related costs for personnel engaged in data center and customer

care functions, credit card processing fees, hosting fees, and data center rent and bandwidth costs.

Beginning in April 2018,

cost of revenue also includes compensation and other employee-related costs for technical personnel and subcontracting costs relating

to technology service revenue.

We expect to experience corresponding growth in our cost of revenue as our software licensing and

technology implementation services business grows.

Sales and marketing

Sales and marketing expense consists primarily

of advertising expenditures and compensation (including stock-based compensation) and other employee-related costs for personnel

engaged in sales and sales support functions.

Advertising and promotional spend includes online marketing, including fees paid

to search engines, and offline marketing, which primarily consists of partner-related payments to those who direct traffic to

Total advertising expense for the year ended December 31, 2019 was approximately $1.1 million and $5.3 million

for the year ended December 31, 2018.

Product development

Product development expense, which relates

to the development of technology of our applications, consists primarily of compensation (including stock-based compensation)

and other employee-related costs that are not capitalized for personnel engaged in the design, testing and enhancement of service

offerings as well as amortization of capitalized website development costs.

General and administrative

General and administrative expense consists

primarily of compensation (including stock-based compensation) and other employee-related costs for personnel engaged in executive

management, finance, legal, tax, human resources and facilities costs and fees for other professional services.

General and administrative

expense also includes depreciation of property and equipment and amortization of intangible assets.

Reportable Segment

The Company operates in one reportable

segment, and management assesses the Company’s financial performance and makes operating decisions based on a single operating

The Company accounts for income taxes

under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future

tax consequences of events that have been included in the financial statements.

Under this method, the Company determines deferred

tax assets and liabilities on the basis of the differences between the financial statement and tax bases of assets and liabilities

by using enacted tax rates in 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 Company recognizes deferred tax assets

to the extent that the Company believes that these assets are more likely than not to be realized.

In making such a determination,

the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences,

projected 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.

The Company records uncertain tax positions

in accordance with ASC 740 on the basis of a two-step process in which (1) 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.

The Company recognizes interest and penalties

related to unrecognized tax benefits on the income tax expense line in the accompanying consolidated statement of operations.

Accrued interest and penalties would be included on the related tax liability line in the accompanying Consolidated Balance Sheets.

Stock-Based Compensation

In accordance with ASC No.

718, Compensation

Stock Compensation (“ASC 718”) , the Company measures the compensation costs of stock-based compensation

arrangements based on the grant date fair value of granted instruments and recognizes the costs in the financial statements over

the period during which employees are required to provide services.

Stock-based compensation arrangements include stock options

and restricted stock awards.

Equity instruments (“instruments”) issued to non-employees

are recorded on the basis of the fair value of the instruments, as required by ASU No.

Subsequent reversal of impairment losses is not permitted.

(if any) are not recorded until realized upon sale, at which point they would be presented net of any impairment losses in the

Company’s consolidated statements of operations.

In determining the gain to be recognized upon sale, the Company calculates

the difference between the sales price and carrying value of the specific digital token sold immediately prior to sale.

Company determines the fair value of its digital tokens on a nonrecurring basis in accordance with ASC 820, Fair Value Measurement.

See Note 7, Digital Tokens, to the consolidated financial statements for further information regarding the Company’s digital

of revenue consists primarily of compensation (including stock-based compensation) and other employee-related costs for personnel

engaged in data center and customer care functions, credit card processing fees, hosting fees, and data center rent and bandwidth

Cost of revenue also includes compensation and other employee-related costs for technical personnel and subcontracting

costs relating to technology service revenue.

and marketing

and marketing expense consists primarily of advertising expenditures and compensation (including stock-based compensation) and

other employee-related costs for personnel engaged in sales and sales support functions.

Advertising and promotional spend includes

online marketing, including fees paid to search engines, and offline marketing, which primarily consists of partner-related payments

to those who direct traffic to the Company’s brands.

Total advertising expense for the year ended December 31, 2020 was

approximately $0.8 million and $1.1 million for the year ended December 31, 2019.

TO CONSOLIDATED FINANCIAL STATEMENTS

development expense, which relates to the development of technology of the Company’s applications, consists primarily of

compensation (including stock-based compensation) and other employee-related costs that are not capitalized for personnel engaged

in the design, testing and enhancement of service offerings as well as amortization of capitalized website development costs.

and administrative

and administrative expense consists primarily of compensation (including stock-based compensation) and other employee-related

costs for personnel engaged in executive management, finance, legal, tax, human resources and facilities costs and fees for other

professional services.

General and administrative expense also includes depreciation of property and equipment and amortization

of intangible assets.

Company operates in one reportable segment, and management assesses the Company’s financial performance and makes operating

decisions based on a single operating segment.

Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets

and liabilities for the expected future tax consequences of events that have been included in the financial statements.

this method, the Company determines deferred tax assets and liabilities on the basis of the differences between the financial

statement and tax bases of assets and liabilities by using enacted tax rates in 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.

Company recognizes deferred tax assets to the extent that the Company believes that these assets are more likely than not to be

In making such a determination, the Company considers all available positive and negative evidence, including future

reversals of existing taxable temporary differences, projected 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.

Company records uncertain tax positions in accordance with ASC No.

740, Accounting for Income Taxes (“ASC 740”)

on the basis of a two-step process in which (1) 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.

Company recognizes interest and penalties related to unrecognized tax benefits on the income tax expense line in the accompanying

consolidated statement of operations.

Accrued interest and penalties would be included on the related tax liability line in the

accompanying consolidated balance sheets.

accordance with ASC No.

718, Compensation –

Stock Compensation , the Company measures the compensation costs of stock-based

compensation arrangements based on the grant date fair value of granted instruments and recognizes the costs in the financial

statements over the period during which employees are required to provide services.

Stock-based compensation arrangements include

stock options and restricted stock awards.

TO CONSOLIDATED FINANCIAL STATEMENTS

instruments issued to non-employees are recorded on the basis of the fair value of the instruments, as required by Accounting

Standards Update (“ASU”) No.

2018-07, Compensation —

Stock Compensation

(Topic 718) (“ASU 2018-07”).

ASU 2018-07 expands the scope of Topic 718, which currently only includes share-based

payments to employees, to include share-based payments to non-employees for goods or services.

Consequently, the accounting for

share-based payments to non-employees and employees will be substantially aligned.

The fair value of each option granted

under the Company’s Amended and Restated 2011 Long-Term Incentive Plan (the “2011 Plan”) and 2016 Long-Term

Incentive Plan (the “2016 Plan”) was estimated using the Black-Scholes option-pricing model (see Note 7 for further

Using this model, fair value is calculated based on assumptions with respect to the (i) expected volatility of the Company’s

common stock price, (ii) expected life of the award, which for options is the period of time over which employees and non- employees

are expected to hold their options prior to exercise, (iii) expected dividend yield on the Company’s common stock, and (iv)

a risk-free interest rate, which is based on quoted U.S.

Treasury rates for securities with maturities approximating the expected

Expected volatility is estimated based on the Company’s historical volatilities.

The expected life of options has

been determined using the “simplified”

method, which uses the midpoint between the vesting date and the end of the

contractual term.

The expected dividend yield is zero as the Company has never paid dividends and does not currently anticipate

paying dividends in the foreseeable future.

Net Loss Per Share

Basic net loss per common share is determined

using the two-class method and is computed by dividing net loss by the weighted-average number of common shares outstanding during

the period as defined by ASC No.

260, Earnings Per Share .

The two-class method is an earnings allocation formula that determines

loss per share for each class of common stock and participating security according to dividends declared and participation rights

in undistributed earnings.

The two-class method treats a participating security as having rights to earnings that otherwise would

have been available to common shareholders.

According to the contractual terms of participating securities, such securities do

not participate in losses.

Diluted net loss per common share reflects

the more dilutive earnings per share amount calculated using the treasury stock method or the two-class method, taking into account

any potentially dilutive shares outstanding during the period.

Potentially dilutive shares consist of shares issuable upon the

exercise of stock options and unvested shares of restricted common stock (using the treasury stock method).

To the extent stock

options and unvested shares of restricted common stock are antidilutive, they are excluded from the calculation of diluted loss

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.

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.

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.

Accounts receivable are composed of amounts

due from our advertising partners and from credit card processing companies following the initiation of subscription arrangements

originated by our subscribers, which subscribers pay by credit cards.

These receivables are unsecured and are typically settled

by the payment processing company within several days of transaction processing accordingly, an allowance for doubtful accounts

is considered.

Accounts receivable from advertising partners and payment processing companies amounted to $130,686 and $326,786

on December 31, 2019 and December 31, 2018, respectively.

As of December 31, 2019, three advertising partners accounted

for 47% of accounts receivable.

As of December 31, 2018, two advertising partners accounted for 23% of accounts receivable.

Property and equipment

Property and equipment are stated at cost,

less accumulated depreciation and amortization.

Depreciation and amortization is calculated using the straight-line method over

the estimated useful lives of those assets, as follows:

Stock Compensation (Topic 718) (“ASU 2018-07”).

ASU 2018-07 expands the scope of Topic 718, which currently only includes share-based payments to employees, to include share-based

payments to non-employees for goods or services.

Consequently, the accounting for share-based payments to non-employees and employees

will be substantially aligned.

fair value of each option granted under the Company’s Amended and Restated 2011 Long-Term Incentive Plan (the “2011

Plan”) and 2016 Long-Term Incentive Plan (the “2016 Plan”) was estimated using the Black-Scholes option-pricing

model (see Note 10 for further details).

Using this model, fair value is calculated based on assumptions with respect to the (i)

expected volatility of the Company’s common stock price, (ii) expected life of the award, which for options is the period

of time over which employees and non- employees are expected to hold their options prior to exercise, (iii) expected dividend

yield on the Company’s common stock, and (iv) a risk-free interest rate, which is based on quoted U.S.

Treasury rates for

securities with maturities approximating the expected term.

Expected volatility is estimated based on the Company’s historical

volatilities.

The expected life of options has been determined using the “simplified”

method, which uses the midpoint

between the vesting date and the end of the contractual term.

The expected dividend yield is zero as the Company has never paid

dividends and does not currently anticipate paying dividends in the foreseeable future.

Income (Loss) Per Share

earnings and loss per share are computed by dividing the net income or loss 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 (loss) per share.

and Cash Equivalents

Company considers all highly liquid investments with an original maturity of three months or less at the date of purchase 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.

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.

receivable are composed of amounts due from our advertising partners and from credit card processing companies following the initiation

of subscription arrangements originated by the Company’s subscribers, which pay by credit card.

These receivables are unsecured

and are typically settled by the payment processing company within several days of transaction processing accordingly, an allowance

for doubtful accounts is considered.

Accounts receivable from advertising partners and payment processing companies amounted to

$71,410 and $130,686 on December 31, 2020 and December 31, 2019, respectively.

of December 31, 2020, three advertising partners accounted for 61% of accounts receivable.

As of December 31, 2019, three advertising

partners accounted for 47% of accounts receivable.

TO CONSOLIDATED FINANCIAL STATEMENTS

and equipment

Website development

Furniture and fixtures

Leasehold improvements

and equipment are stated at cost, less accumulated depreciation and amortization.

Depreciation and amortization is calculated

using the straight-line method over the estimated useful lives of those assets, as follows:

and equipment

of estimated useful life or remaining lease term

Repairs and maintenance costs are expensed

Property and equipment is evaluated for

recoverability whenever events or changes in circumstances indicate that the carrying amounts of the assets might not be recoverable.

In evaluating an asset for recoverability, the Company estimates the future cash flow expected to result from the use and eventual

disposition of the asset.

If the expected future undiscounted cash flow is less than the carrying amount of the asset, an impairment

loss, equal to the excess of the carrying amount over the fair value of the asset, is recognized.

No impairment losses were recorded

on property and equipment for the periods presented in these consolidated financial statements.

Website Development Costs

In accordance with ASC 350-50, Website

Development Costs , the Company accounts for website development costs by capitalizing qualifying costs which are incurred

during the development and infrastructure stage.

Expenses incurred in the planning stage are expensed as incurred.

website development cost is included in property and equipment and are amortized straight-line over the expected period of benefit,

which is three years, when the software is ready for its intended use.

Amortization expense related to capitalize website development

costs is included in product development expense.

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.

evaluates its goodwill for impairment in accordance with ASC 350, Intangibles –

Goodwill and Other (as amended by ASU

2017-04) , by assessing qualitative factors to determine whether it is more likely than not (that is, a likelihood of more than

50 percent) that the fair value of a reporting unit is less than its carrying amount, including goodwill.

The Company performs

the quantitative goodwill impairment 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.

An impairment charge is recognized for the amount by which the carrying amount exceeds 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 carrying

amount of the goodwill exceeds its carried value.

and maintenance costs are expensed as incurred.

and equipment is evaluated for recoverability whenever events or changes in circumstances indicate that the carrying amounts of

the assets might not be recoverable.

In evaluating an asset for recoverability, the Company estimates the future cash flow expected

to result from the use and eventual disposition of the asset.

If the expected future undiscounted cash flow is less than the carrying

amount of the asset, an impairment loss, equal to the excess of the carrying amount over the fair value of the asset, is recognized.

No impairment losses were recorded on property and equipment for the periods presented in these consolidated financial statements.

Development Costs

accordance with ASC 350-50, Website Development Costs , the Company accounts for website development costs by capitalizing

qualifying costs which are incurred during the development and infrastructure stage.

Expenses incurred in the planning stage are

expensed as incurred.

Capitalized website development cost is included in property and equipment and are amortized straight-line

over the expected period of benefit, which is three years, when the software is ready for its intended use.

Amortization expense

related to capitalize website development costs is included in product development expense.

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 its goodwill for impairment in accordance with ASC 350, Intangibles –

Goodwill and Other (as amended by ASU 2017-04) , by assessing qualitative factors to determine whether it is more likely than

not (that is, a likelihood of more than 50 percent) that the fair value of a reporting unit is less than its carrying amount,

including goodwill.

The Company performs the quantitative goodwill impairment 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.

An impairment charge is recognized for

the amount by which the carrying amount exceeds the reporting unit’s fair value, limited to the total amount of goodwill

related to the reporting unit.

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 carrying amount of the goodwill exceeds its carried value.

The Company has one reporting unit.

The Company performed a qualitative assessment

and concluded that impairment of $6.8 million existed as of December 31, 2019, compared to no impairment for the year ended December

31, 2018 (See Note 12 for further details on impairment recorded).

Intangible Assets

The Company’s intangible assets

represent definite lived intangible assets, which are being amortized on a straight-line basis over their estimated useful lives

Trade names, trademarks, product names, URLs

Internally developed software

Non-compete agreements

Subscriber/customer relationships

The Company reviews intangible assets

for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets might not

be recoverable.

Factors that the Company considers in deciding when to perform an impairment review include significant underperformance

of the business in relation to expectations, significant negative industry or economic trends, and significant changes or planned

changes in the use of the assets.

If an impairment review is performed to evaluate a long-lived asset for recoverability, the

Company compares forecasts of undiscounted cash flows expected to result from the use and eventual disposition of the long-lived

asset to its carrying value.

An impairment loss would be recognized when estimated undiscounted future cash flows expected to

result from the use of an asset are less than its carrying amount.

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.

Asset and Liability Held for Sale

An asset is considered to be held for sale

when all of the following criteria are met:

(i) management commits to a plan to sell the asset;

(ii) it is unlikely that the disposal

plan will be significantly modified or discontinued;

(iii) the asset is available for immediate sale in its present condition;

(iv) actions required to complete the sale of the asset have been initiated;

(v) sale of the asset is probable and the completed

sale is expected to occur within one year;

and (vi) the asset is actively being marketed for sale at a price that is reasonable

given its current market value.

An asset classified as held for sale is measured

at the lower of its carrying amount or fair value less cost to sell.

If the long-lived asset is newly acquired, the carrying amount

of the long-lived asset is established based on its fair value less cost to sell at the acquisition date.

A long-lived asset is

not depreciated or amortized while it is classified as held for sale.

As of December 31, 2018, the Company had an asset and liability

held for sale as a result of the Asset Purchase Agreement with The Dating Company, LLC on January 31, 2019 pursuant to which we

sold substantially all of the assets related to our online dating services business under the domain names FirstMet and 50more

(see Note 3 for further details).

Effective December 31, 2018, the Company

accounts for its leases under ASC 842, Leases (“ASC 842 ”).

Under this guidance, arrangements meeting the definition

of a lease are classified as operating or financing leases, and are recorded on the consolidated balance sheet as both a right

of use asset and lease liability, calculated by discounting fixed lease payments over the lease term at the rate implicit in the

lease or the Company’s incremental borrowing rate.

Lease liabilities are increased by interest and reduced by payments each

period, and the right of use asset is amortized over the lease term.

For operating leases, interest on the lease liability and

the amortization of the right of use asset result in straight-line rent expense over the lease term.

Fair Value of Financial Instruments

The carrying amounts of the Company’s

cash and cash equivalents, accounts receivable, credit card holdback receivable, accounts payable, approximate fair value due

to the short-term nature of these instruments.

Recent Accounting Pronouncements

In January 2017, the FASB issued ASU 2017-04,

Intangibles - Goodwill and Other (Topic 350):

Simplifying the Accounting for Goodwill Impairment (“ASU 2017-04”).

ASU 2017-04 removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation.

impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying

amount of goodwill.

This standard, which will be effective for the Company beginning in the first quarter of fiscal year 2020,

is required to be applied prospectively.

Early adoption is permitted for interim or annual goodwill impairment tests performed

on testing dates after January 1, 2017.

The Company adopted this guidance during the fourth quarter of fiscal year 2019, and its

adoption had a significant impact on the Company’s consolidated financial statements (refer to Note 12 for further details).

In June 2018, the FASB issued an ASU to

simplify several aspects of the accounting for nonemployee share-based payment transactions by expanding the scope of Topic 718,

Compensation—Stock Compensation , to include share-based payment transactions for acquiring goods and services from

nonemployees.

An entity should apply the requirements of Topic 718 to nonemployee awards except for specific guidance on inputs

to an option pricing model and the attribution of cost (that is, the period of time over which share-based payment awards vest

and the pattern of cost recognition over that period).

The amendments specify that Topic 718 applies to all share-based payment

transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing

share-based payment awards.

The amendments also clarify that Topic 718 does not apply to share-based payments used to effectively

provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of

a contract accounted for under ASC 606.

The amendments in this ASU are effective for the Company on January 1, 2019.

adopted this guidance, and its adoption did not have any significant impact on the Company’s consolidated financial statements

and related disclosures.

In December 2019, the FASB issued ASU 2019-12,

Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes , which is intended to simplify various aspects

related to accounting for income taxes.

ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also

clarifies and amends existing guidance to improve consistent application.

ASU 2019-12 is effective for fiscal years beginning

after December 15, 2021.

The Company has not early adopted ASU 2019-12 and is currently evaluating its impact financial position,

results of operations, and cash flows.

On January 31, 2019, the Company entered

into an Asset Purchase Agreement with The Dating Company, LLC, pursuant to which the Company sold substantially all of the assets

related to its online dating services business under the domain names FirstMet, 50more, and The Grade (collectively, the “Dating

Services Business”) for a cash purchase price of $1.6 million, with $100.0 thousand of the purchase price that was held in

an escrow account to secure certain of the Company’s post-closing indemnification obligations.

The closing of the asset sale

was effective as of January 31, 2019.

In the first quarter of 2019, management

determined that the disposal of the Dating Services Business met the criteria for presentation as discontinued operations.

the results of the Dating Services Business are presented as discontinued operations in our consolidated statements of operations

and are excluded from continuing operations for all periods presented.

In addition, the assets and liabilities of the Dating Services

Business are classified as held for sale in our consolidated balance sheets for all periods presented.

The operations of the Dating Services

Business are included in our results as discontinued operations through January 31, 2019, the date of sale.

The following tables summarize the major

line items included in loss from discontinued operations for the Dating Services Business:

Costs of revenue

Sales and marketing expense

Product development expense

General and administrative expense

Loss from discontinued operations

Property and Equipment, Net

Property and equipment, net consists of

the following:

Computer equipment

Website development

Furniture and fixtures

Leasehold improvements

Total property and equipment

The Company performed a qualitative assessment and concluded that no impairment existed as of December 31, 2020, compared to an

impairment of $6.8 million for the year ended December 31, 2019 (See Note 5 for further details on the impairment recorded for

the year ended December 31, 2019).

Company’s intangible assets represent definite lived intangible assets, which are being amortized on a straight-line basis

over their estimated useful lives as follows:

names, trademarks, product names, URLs

developed software

Subscriber/customer

relationships

Company reviews intangible assets for impairment whenever events or changes in business circumstances indicate that the carrying

amount of the assets might not be recoverable.

Factors that the Company considers in deciding when to perform an impairment review

include significant underperformance of the business in relation to expectations, significant negative industry or economic trends,

and significant changes or planned changes in the use of the assets.

If an impairment review is performed to evaluate a long-lived

asset for recoverability, the Company compares forecasts of undiscounted cash flows expected to result from the use and eventual

disposition of the long-lived asset to its carrying value.

An impairment loss would be recognized when estimated undiscounted

future cash flows expected to result from the use of an asset are less than its carrying amount.

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.

TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2018, the Company accounts for its leases under ASC 842, Leases (“ASC 842”).

Under this guidance,

arrangements meeting the definition of a lease are classified as operating or financing leases and are recorded on the consolidated

balance sheets as both a right of use asset and lease liability, calculated by discounting fixed lease payments over the lease

term at the rate implicit in the lease or the Company’s incremental borrowing rate.

Lease liabilities are increased by interest

and reduced by payments each period, and the right of use asset is amortized over the lease term.

For operating leases, interest

on the lease liability and the amortization of the right of use asset result in straight-line rent expense over the lease term.

Accounting Pronouncements

December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes , which

is intended to simplify various aspects related to accounting for income taxes.

ASU 2019-12 removes certain exceptions to the

general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application.

is effective for fiscal years beginning after December 15, 2021.

The Company has not early adopted ASU 2019-12 and is currently

evaluating its impact financial position, results of operations, and cash flows.

January 31, 2019, the Company entered into an Asset Purchase Agreement with The Dating Company, LLC, pursuant to which the Company

sold substantially all of the assets related to its online dating services business under the domain names FirstMet, 50more, and

The Grade (collectively, the “Dating Services Business”) for a cash purchase price of $1.6 million.

The closing of

the asset sale was effective as of January 31, 2019.

In the first quarter of 2019, management determined

that the disposal of the Dating Services Business met the criteria for presentation as discontinued operations.

Accordingly, the

results of the Dating Services Business are presented as discontinued operations in the Company’s consolidated statements

of operations through January 31, 2019, the date of sale, and are excluded from continuing operations for all periods presented.

In addition, the assets and liabilities of the Dating Services Business are classified as held for sale in the Company’s

consolidated balance sheets for all periods presented.

following tables summarize the major line items included in loss from discontinued operations for the Dating Services Business

for the periods presented:

and marketing expense

development expense

and administrative expense

from discontinued operations

were no major line items included in loss from discontinued operations for the Dating Services Business for the year ended December

Equipment, Net

and equipment, net consisted of the following for the periods presented:

property and equipment

Accumulated depreciation

Total property and equipment, net

Depreciation expense, which includes amortization

of website development costs, for the years ended December 31, 2019 and 2018 was $349,082 and $387,452, respectively.

Intangible Assets, Net

Intangible assets, net consist of the following:

Trade names, trademarks, product names, URLs

Internally developed software

Subscriber/customer relationships

Total intangible assets

Amortization expense for the years ended December 31,

2019 and 2018 was $256,332 and $1,599,721, respectively.

The estimated aggregate amortization expense for each of the next five

years and thereafter will be $246,681 in 2020, $184,667 in 2021, $149,944 in 2022 and $46,599 thereafter.

The Company’s provision for income taxes is comprised of the

State and local

Total current

State and local

Change in valuation allowance

Total deferred

Total provision (benefit)

In 2019, as a result of the gain recorded in

discontinued operations related to the sale of the Dating Services Business, the Company recorded an income tax benefit of $159,265

from continuing operations pursuant to the intra-period allocation guidance in ASC 740-20-45-7 which was partially offset by an

income tax provision of $17,672 for state and local taxes.

property and equipment, net

TO CONSOLIDATED FINANCIAL STATEMENTS

expense, which includes amortization of website development costs, for the years ended December 31, 2020 and 2019 was $325,044

and $349,082, respectively.

on disposal of property and equipment for the years ended December 31, 2020 and 2019 was $39,238 and $0, respectively, as a result

from the termination of one of our office leases.

Company tests goodwill and indefinite-lived intangible assets for impairment annually and whenever events or circumstances arise

that indicate an impairment may exist.

Company recorded $6,760,222 of goodwill impairment for the year ended December 31, 2019 due to a sustained decrease in market

price per share of the Company’s common stock.

At December 31, 2019, the market price per share of the Company’s common

stock declined to $1.29, and as such, the Company tested for an impairment and concluded that its goodwill should be reduced as

result of the decline in the market price per share and fair value of the reporting unit.

Company determined there were no indicators that would lead to a test for impairment during the year ended December 31, 2020.

Goodwill was $6,326,250 at December 31, 2020 and December 31, 2019.

Intangible Assets,

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

names, trademarks, product names, URLs

developed software

Subscriber/customer

relationships

intangible assets

$ (4,492,790 )

$ (4,246,109 )

expense for the years ended December 31, 2020 and 2019 was $246,681 and $256,332, respectively.

The aggregate amortization expense

for each of the next five years and thereafter is estimated to be $184,667 in 2021, $149,944 in 2022, $18,000 in 2023, $17,354

in 2024, $2,500 in 2025 and $8,745 thereafter.

Digital Tokens

December 31, 2019, digital tokens consisted of XPX tokens received in connection with the ProximaX Agreement.

At December 31,

2020, digital tokens and digital tokens receivable consist of Props tokens received in connection with the YouNow Agreement.

that there is limited precedent regarding the classification and measurement of cryptocurrencies and other digital tokens under

current GAAP, the Company has determined to account for these tokens as indefinite-lived intangible assets in accordance with

ASC 350, Intangibles-Goodwill and Other until further guidance is issued by the FASB.

to September 2019, the fair value of the Company’s XPX tokens had been based on

the quoted market prices for the XPX tokens (Level 1 inputs).

In September 2019, the

Kryptono Exchange announced that as part of its periodic review of its listed digital

assets it was determined that ProximaX no longer met its standards for continued listing.

Accordingly, it delisted and ceased trading for XPX tokens on October 4, 2019.

the value of XPX as listed on other exchanges had declined significantly, the Company

recorded an impairment charge in the amount of $625,368 which is reported as a component

of other income and expenses in the accompanying consolidated statements of operations

for the year ended December 31, 2019.

TO CONSOLIDATED FINANCIAL STATEMENTS

the year ended December 31, 2020, the Company sold 124,752,914 digital tokens for proceeds of $75,406.

The recorded loss of approximately

$72,800 is included under other expense, net in the consolidated statements of operations.

Props tokens received and receivable from YouNow are intangible assets that are accounted for at cost, less impairment charges.

According to the guidance, a holder of utility tokens cannot only compare the carrying value to fair value at the reporting period,

but instead must assess impairment daily.

As a result, the Company uses the amount equal the lowest price during the period in

which the Props tokens are held as the carrying amount for purposes of testing for impairment.

calculate the fair value of the Props tokens received and receivable pursuant to the YouNow Agreement, the Company, through a

third-party valuation, used the backsolve method, which utilizes the option pricing method to calculate the implied value of the

Props tokens based on the most recent transaction price publicly available (Level 3 inputs).

For purposes of the Backsolve method,

the Company used a precedent transaction in which Props tokens were purchased at a price of $0.07 per Props token.

The precedent

transaction also included the issuance of warrants to purchase additional Props tokens at a strike price of $0.07 per Props token.

Using the Backsolve method, the Company took into account the strike price of the warrants issued in the precedent transaction

and then determined the allocated value of the Props tokens as though it were a basket purchase.

implied fair value of the Props tokens represents a marketable basis of value.

As the Props tokens do not currently have access

to a liquid marketplace, a discount for lack of marketability was applied to the implied fair value using a protective put calculation.

A summary of the key inputs used in the Backsolve model at December 31, 2020 are summarized as follows:

(time until an exit or liquidity)

free rate of return

basic logic of the protective put approach is supported by the notion that the holder of a non-marketable security can effectively

purchase liquidity by purchasing a put option on the security.

Therefore, the non-marketable value of a security is its value

on a marketable basis, less the value of the hypothetical put option.

The put option calculation relies on the Black-Scholes option

pricing model, which utilizes volatility from comparable utility tokens, an estimated time to maturity (or liquidity), and the

risk-free rate commensurate with that maturity.

tokens earned, receivable or payable before June 30, 2020, were recorded based on a $0.02 fair value estimated at the end of the

reporting period.

Digital tokens earned, receivable or payable from July 1, 2020 through December 31, 2020 were recorded based

on an estimated fair value of $0.039.

At December 31, 2020, the Company recorded

$439,145 under digital tokens, $123,397 under digital tokens payable and $210,000 under digital tokens receivable pursuant to

the YouNow Agreement.

March 27, 2020, the CARES Act was enacted in response to COVID-19 pandemic.

Under ASC 740, the effects of changes in tax rates

and laws are recognized in the period which the new legislation is enacted.

The CARES Act made various tax law changes including

among other things (i) increasing the limitation under IRC Section 163(j) for 2019 and 2020 to permit additional expensing of

interest, (ii) enacting a technical correction so that qualified improvement property can be immediately expensed under IRC Section

168(k), (iii) making modifications to the federal net operating loss rules including permitting federal net operating losses incurred

in 2018, 2019, and 2020 to be carried back to the five preceding taxable years in order to generate a refund of previously paid

income taxes and (iv) enhancing recoverability of AMT tax credits.

Given the Company’s full valuation allowance position,

the CARES Act did not have a material impact on the financial statements.

TO CONSOLIDATED FINANCIAL STATEMENTS

Company’s provision for income taxes is comprised of the following:

Provision (Benefit)

2020, the Company recorded an income tax provision of $387 for state and local taxes.

In 2019, as a result of the gain recorded

in discontinued operations related to the sale of the Dating Services Business, the Company recorded an income tax benefit of

$159,265 from continuing operations pursuant to the intra-period allocation guidance in ASC 740-20-45-7 which was partially offset

by an income tax provision of $17,672 for state and local taxes.

The Company also recorded an income tax expense of $159,265 allocated

to discontinued operations.

In 2018, the Company recorded an income tax provision of $3,001 for state and local taxes.

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 tax assets:

Net operating losses

Share-based compensation

Amortization of intangible assets

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:

operating losses

of Intangible Assets

Valuation Allowance:

Total deferred tax assets

Deferred Tax Assets

Tax Liabilities:

and equipment

Deferred Tax Liabilities

Property and equipment

Total deferred tax liabilities

Net deferred tax assets

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.

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.

Based on these factors including cumulative losses in

recent years, the Company determined that its deferred tax assets are not realizable on a more-likely-than-not basis and has recorded

a valuation allowance against its net deferred tax assets.

The Company’s valuation allowance increased by $10,322 during

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.

The Company’s effective tax rate differs

from the U.S.

Deferred Tax Assets

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.

Based on these factors

including cumulative losses in recent years, the Company determined that its deferred tax assets are not realizable on a more-likely-than-not

basis and has recorded a valuation allowance against its net deferred tax assets.

The Company’s valuation allowance decreased

by $446,075 during 2020.

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.

TO CONSOLIDATED FINANCIAL STATEMENTS

of December 31, 2020, the Company has U.S.

federal net operating loss carryforwards of approximately $18.3 million, of which $14.4

million may be subject to a significant annual limitation under Section 382 of the Internal Revenue Code.

Of the $18.3 million,

approximately, $17.1 million will expire in 2030 to 2037, if not utilized.

The remaining $1.2 million may be carried forward indefinitely.

Company’s effective tax rate differs from the U.S.

federal statutory income tax rate of 21% for 2020 and 2019 as follows:

Income tax (expense) benefit at federal statutory rate

Permanent differences

State and local taxes

Valuation allowance

Deferred tax adjustment

Effective tax rate

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.

statutory rate

and local taxes

tax adjustment

Share based compensation

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, 2020, 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, 2019.

The Company files a federal income tax return

and income tax returns in various state tax jurisdictions.

The open tax years for the federal income tax return is 2016 through

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, 2020.

Company files a federal income tax return and income tax returns in various state tax jurisdictions.

The open tax years for the

federal income tax return is 2017 through 2020.

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 2009.

years relating to any of the Company’s federal and state net operating losses begin in 2009.

Accrued Expenses

and Other Current Liabilities

expenses and other current liabilities consisted of the following for the periods presented:

Compensation,

benefits and payroll taxes

accrued expenses

accrued expenses and other current liabilities

consist of the following:

Compensation, benefits and payroll taxes

Income tax payable

Other accrued expenses

Total accrued expenses and other current liabilities

TO CONSOLIDATED FINANCIAL STATEMENTS

Stockholders’

The PeerStream, Inc.

Amended and Restated

2011 Long-Term Incentive Plan (the “2011 Plan”) was terminated as to future awards on May 16, 2016.

A total of 181,604

shares of the Company’s common stock may be issued pursuant to outstanding options awarded under the 2011 Plan;

no additional awards may be granted under such plan.

The PeerStream, 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, 2019, there were 454,792 shares

available for future issuance under the 2016 Plan.

Treasury Shares

On April 29, 2019, the Company implemented a stock repurchase

plan to repurchase up to $500 thousand of its common stock for cash.

The repurchase plan expires on April 29, 2020.

has purchased 1,900 shares of its common stock under the repurchase plan as of December 31, 2019 and has classified them as

treasury shares.

Shares issued for consulting services

On January 15, 2019 and October 1, 2019,

we issued 6,000 and 4,225 shares of our common stock, respectively, to PCG Advisory, Inc.

as consideration for investor relations

2011 Plan was terminated as to future awards on May 16, 2016.

A total of 121,930 shares of the Company’s common stock may

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

however, no additional awards may be granted under such

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, 2020, there were 853,999

shares available for future issuance under the 2016 Plan.

April 29, 2019, the Company implemented a stock repurchase plan to repurchase up to $500,000 of its common stock for cash.

repurchase plan expired on April 29, 2020.

The Company had purchased 9,950 shares of its common stock under the repurchase plan

as of April 29, 2020 and has classified them as treasury shares on the Company’s consolidated balance sheets.

issued for consulting services

August 11, 2020, the Company issued 37,500 shares of its common stock to a consultant as consideration for investor relations

The total expense for these grants was $43,500 and is included in general and administrative expense in the consolidated

financial statements.

Stock Options

The following table summarizes the assumptions

used in the Black-Scholes pricing model to estimate the fair value of the options granted during the years ended:

Expected volatility

Expected life of option

Risk free interest rate

Expected dividend yield

The expected life of the options is the

period of time over which employees and non-employees are expected to hold their options prior to exercise.

The expected life

of options has been determined using the “simplified”

method as prescribed by Staff Accounting Bulletin 110, which

uses the midpoint between the vesting date and the end of the contractual term.

The volatility of the Company’s common stock

is calculated using the Company’s historical volatilities beginning at the grant date and going back for a period of time

equal to the expected life of the award.

The Company estimates potential forfeitures of stock awards and adjusts recorded stock-based

compensation expense accordingly.

The Company estimates pre-vesting forfeitures primarily based on the Company’s historical

experience and is adjusted to reflect actual forfeitures as the stock-based awards vest.

The following tables summarize stock option

activity during the year ended December 31, 2019:

Outstanding at January 1, 2019

Exercised during period

Forfeited or canceled, during the period

Expired, during the period

Outstanding at December 31, 2019

Exercisable at December 31, 2019

On May 7, 2019, in connection with Judy

Krandel’s resignation as an officer and employee of the Company, the Company (i) entered into an option cancellation and

release agreement, pursuant to which the Company canceled Ms.

Krandel’s option award agreement, dated November 15, 2016,

related to the award of a stock option representing the right to purchase 142,857 shares of common stock and (ii) entered into

a revised option agreement granting Ms.

Krandel a stock option representing the right to purchase up to 142,857 shares of common

stock at an exercise price equal to $3.55 per share (the “Revised Option Agreement”).

The stock option subject to

the Revised Option Agreement vests:

(i) 50% on the date of grant, (ii) 25% on May 15, 2019 and (iii) 25% in 12 equal installments

on the 15th day of each month, with the first tranche vesting on June 15, 2019 and the last tranche vesting on May 15, 2020.

Company accounted for these agreements as an option modification and recognized approximately $115,000 of stock compensation expense

in connection with the agreements.

At December 31, 2019, there was $635,013

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

period of 1.78 years.

On December 31, 2019, there was no

aggregate intrinsic value of stock options that were outstanding and exercisable.

On December 31, 2018, the aggregate intrinsic

value of stock options that were outstanding and exercisable was $725,604 and $365,861, respectively.

statements of operations.

following table summarizes the assumptions used in the Black-Scholes pricing model to estimate the fair value of the options granted

during the years ended:

171.0-177.0 %

life of option

free interest rate

dividend yield

expected life of the options is the period of time over which employees and non-employees are expected to hold their options prior

The expected life of options has been determined using the “simplified”

method as prescribed by Staff

Accounting Bulletin 110, which uses the midpoint between the vesting date and the end of the contractual term.

The volatility

of the Company’s common stock is calculated using the Company’s historical volatilities beginning at the grant date

and going back for a period of time equal to the expected life of the award.

The Company estimates potential forfeitures of stock

awards and adjusts recorded stock-based compensation expense accordingly.

The Company estimates pre-vesting forfeitures primarily

based on the Company’s historical experience and is adjusted to reflect actual forfeitures as the stock-based awards vest.

following tables summarize stock option activity during the year ended December 31, 2020:

at January 1, 2020

during period

or canceled, during the period

during the period

at December 31, 2020

TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2020, there was $128,879 of total unrecognized compensation expense related to stock options, which is expected to

be recognized over a weighted average period of 2.01 years.

December 31, 2020, the aggregate intrinsic value of stock options that were outstanding and exercisable was $15,840.

31, 2019, there was no aggregate intrinsic value of stock options that were outstanding and exercisable.

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, 2019, the Company granted

options to employees to purchase an aggregate of 268,294 shares of common stock.

These options vest between one and four years

and have a term of ten years and have a weighted average exercise price of $3.17.

The aggregate fair value for the options

granted during the years ended December 31, 2019 and 2018 was $469,179 and $708,501, respectively.

Stock-based compensation expense for the

Company’s stock options included in the consolidated statements of operations is as follows:

Cost of revenue

Sales and marketing expense

Product development expense

General and administrative expense

Total stock-based compensation expense

Restricted Stock Awards

The following table summarizes restricted

stock award activity for the year ended December 31, 2019:

Unvested at January 1, 2019

Expired or canceled, during the period

Forfeited, during the period

Unvested at December 31, 2019

At December 31, 2019, there was no

unrecognized compensation expense related to unvested restricted stock awards.

Stock-based compensation expense relating

to restricted stock awards for the years ended December 31, 2019 and 2018 was $556,122 and $741,494, respectively, which

is included in general and administrative expense in the consolidated financial statements.

the year ended December 31, 2020, the Company granted options to the Company’s board of directors to purchase an aggregate

of 24,000 shares of common stock.

These options vest over one year and have a term of ten years and have a weighted average exercise

price of $0.80.

aggregate fair value for the options granted during the years ended December 31, 2020 and 2019 was $18,664 and $469,179, respectively.

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

and marketing expense

development expense

and administrative expense

stock-based compensation expense

Net Income (Loss)

Basic net income (loss) per share of common

stock is computed based upon the number of weighted average shares of common stock outstanding as defined by ASC Topic 260, Earnings

Diluted net income (loss) per share of common stock includes the dilutive effects of stock options and stock equivalents.

To the extent stock options are antidilutive, they are excluded from the calculation of diluted net income (loss) per share of

common stock.

For the year ended December 31, 2019, 1,021,243 of shares upon the exercise of outstanding stock options were

not included in the computation of diluted net income (loss) per share for continuing operations because their inclusion would

be antidilutive.

The following table summarizes the net income (loss) per share

Net income (loss) from discontinued operations - basic and diluted

$ (1,791,286 )

Weighted average shares outstanding –

basic and diluted

Per share data:

Basic and diluted from discontinued operations

Net income (loss) from continuing operations - basic and diluted

$ (8,942,685 )

$ (2,005,931 )

Weighted average shares outstanding –

basic and diluted

Per share data:

Basic and diluted from continuing operations

Net income (loss) - basic and diluted

$ (8,380,060 )

$ (3,797,217 )

Weighted average shares outstanding –

earnings and loss per share are computed by dividing the net income or loss 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 (loss) per share.

For the year ended December 31, 2020, 618,918 of shares issuable upon the exercise of outstanding stock

options were not included in the computation of diluted net income per share for continuing operations because their inclusion

would be antidilutive.

For the year ended December 31, 2020, 3,118 of shares issuable upon the exercise of outstanding stock options

were included in the computation of diluted net income per share for continuing operations because their inclusion would be dilutive.

For the year ended December 31, 2019, 1,021,243 of shares issuable upon the exercise of outstanding stock options were not included

in the computation of diluted net income (loss) per share for continuing operations because their inclusion would be antidilutive.

TO CONSOLIDATED FINANCIAL STATEMENTS

following table summarizes the net income (loss) per share calculation for the periods presented:

Net income (loss) from continuing

operations –

basic and diluted

Total weighted average shares outstanding –

Dilutive potential options

Total weighted average shares outstanding –

Per share data:

Basic and diluted

Operating Leases

Basic from continuing operations

Diluted from continuing operations

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 runs through November 30, 2021.

The Company’s monthly

office rent payments under the lease are currently approximately $5,900 per month.

May 1, 2019, the Company entered into a sublease agreement with Telecom Infrastructure Corp.

(“Telecom”) for office

space located at 122 East 42nd Street in New York, NY, pursuant to which Telecom was required to pay the Company $11,164 per month.

The term of the sublease ran until April 26, 2023.

On June 18, 2020, the Company entered into an agreement to terminate the sublease

for this office space.

Pursuant to the terms of the agreement, Telecom vacated the offices on June 30, 2020.

TO CONSOLIDATED FINANCIAL STATEMENTS

May 1, 2019, the Company entered into a lease agreement for office space located at 122 East 42nd Street in New York, NY and paid

a $133,968 security deposit in the form of a letter of credit.

The term of the lease ran until April 26, 2023.

The Company’s

monthly office rent payments under the lease were approximately $33,492 per month.

On June 22, 2020, 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 runs through November 30, 2021.

The Company’s monthly office rent payments under the

lease are currently approximately $5,900 per month.

On May 1, 2019, the Company entered into

a lease agreement for office space located at 122 East 42nd Street in New York, NY and paid a $133,968 security deposit in the

form of a letter of credit.

The term of the lease runs until April 26, 2023.

The Company’s monthly office rent payments

under the lease are currently approximately $33,492 per month.

On May 1, 2019, the Company entered into

a sublease agreement with Telecom Infrastructure Corp.

for office space located at 122 East 42nd Street in New York, NY, pursuant

to which Telecom Infrastructure Corp.

is required to pay the Company $11,164 per month.

The term of the sublease runs until April

As of December 31, 2019, the Company

had no long-term leases that were classified as a financing lease.

As of December 31, 2019, the Company did not have additional

operating and financing leases that have not yet commenced.

At December 31, 2019, the Company had operating lease liabilities

of approximately $0.6 million and right of use assets of approximately $0.7 million, which are included in the consolidated balance

an agreement to terminate the lease for this office space.

Pursuant to the terms of the agreement, the Company vacated the offices

on June 30, 2020 and the Company agreed to forfeit its security deposit of $133,968.

accordance with ASC 842, the Company accounted for the cancellation of the lease by removing the right-of-use asset and the lease

liability from the consolidated balance sheets, with a profit recognized for the difference.

The Company recorded a net gain on

the office lease cancellation of $141,001, which is reflected in the consolidated statements of operations for the year ended

December 31, 2020.

of December 31, 2020, the Company had no long-term leases that were classified as financing leases.

As of December 31, 2020, the

Company did not have additional operating and financing leases that had not yet commenced.

December 31, 2020, the Company had operating lease liabilities of approximately $0.1 million and right-of-use assets of approximately

$0.1 million, which are included in the consolidated balance sheets.

Total rent expense for the year ended December

was $394,636, of which $52,136 was sublease income, and is recorded in general and administrative expense on the consolidated statements

of operations.

The following summarizes quantitative information about the

Company’s operating leases:

Operating lease cost

Short-term lease rent expense

Total rent expense

The following table summarizes the Company’s

operating and financing leases:

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

Operating cash flows from operating leases

Weighted average remaining lease term

Operating leases

Weighted average discount rate

Operating leases

On December 31, 2019, future

minimum payments under non-cancelable operating leases were as follows:

For the years ending December 31,

31, 2020 was $206,347, of which $36,095 was sublease income.

Total rent expense for the year ended December 31, 2019 was $394,636.

Rent expense is recorded under general and administrative expense in the consolidated statements of operations.

following table summarizes the Company’s operating leases for the periods presented:

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

average assumptions:

December 31, 2020, future minimum payments under non-cancelable operating leases were as follows:

the years ending December 31,

present value adjustment

Present value of minimum lease payments

Commitments and contingencies

Legal Proceedings

On December 16, 2016, a wholly owned subsidiary

of the Company, Paltalk Holdings, Inc., filed a patent infringement lawsuit in Delaware against Riot Games, Inc.

and Valve Corporation

for infringement of U.S.

5,822,523 and 6,226,686 with respect to their online games League of Legends and Defense

of the Ancients 2.

These two patents were previously asserted against, and then licensed to, Microsoft, Sony, and Activision.

In 2018, Valve Corporation moved to transfer the litigation from Delaware to the Western District of Washington.

Such motion was

granted by the court.

Riot Games, Inc.

has filed a total of

four inter partes reviews at the Patent Trial and Appeal Board (“PTAB”) of the United States Patent and Trademark

Office, two per patent held by Paltalk Holdings, Inc., seeking to have the Paltalk Holdings, Inc.

patents declared invalid.

May 14, 2019, the PTAB rejected the validity of the patents.

On September 27, 2019, the Company filed an appeal of the PTAB’s

The Company may be included in legal proceedings,

claims and assessments arising in the ordinary course of business.

The Company evaluates the need for a reserve for specific legal

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

No reserve was deemed necessary

as of December 31, 2019.

The Company test goodwill and indefinite-lived intangible assets

for impairment annually and whenever events or circumstances arise that indicate an impairment may exist.

The Company recorded $6,760,222 of goodwill

impairment for the year ended December 31, 2019 due to a sustained decrease in market price per share.

At December 31, 2019, the

market price per share declined to $1.29 and as such, the company tested for an impairment and concluded that the goodwill should

be reduced as result of the decline in the market price per share and fair value of the reporting unit.

At December 31, 2019,

the goodwill was $6,326,250 and $13,086,472 for the year ended December 31, 2018.

The following table reflects changes in

the carrying amount of goodwill for our reporting unit for the years ended December 31, 2019 and 2018:

Balance at January 1, 2018

Balance at December 31, 2018

Balance at December 31, 2019

value of minimum lease payments

April 13, 2020, to help ensure adequate liquidity in light of the uncertainties posed by the coronavirus pandemic, the Company

applied for a loan under the SBA Paycheck Protection Program under the recently enacted CARES Act.

On May 3, 2020, the Company

entered into the Note in favor of the Lender.

TO CONSOLIDATED FINANCIAL STATEMENTS

Note has a two-year term, matures on May 3, 2022, and bears interest at a stated rate of 1.0% per annum.

Monthly principal and

interest payments commenced in December 2020.

The Company did not provide any collateral or guarantees for the Note, nor did the

Company pay any facility charge to obtain the Note.

The Note provides for customary events of default, including, among others,

those relating to failure to make payment, bankruptcy, breaches of representations and material adverse effects.

The Company may

prepay the principal of the Note at any time without incurring any prepayment charges.

Note may be partially or fully forgiven if the Company complies with the provisions of the CARES Act, including the use of Note

proceeds for payroll costs, rent, utilities and certain other expenses as defined in the CARES Act.

Any forgiveness of the Note

will be subject to approval by the SBA and the Lender.

Total term debt

portion of term debt

Non-current portion

January 13, 2021, the Note was fully forgiven by the SBA and the Lender in compliance with the provisions of the CARES Act.

Commitments and

contingencies

December 16, 2016, a wholly owned subsidiary of the Company, Paltalk Holdings, Inc., filed a patent infringement lawsuit in Delaware

against Riot Games, Inc.

and Valve Corporation for infringement of U.S.

5,822,523 and 6,226,686 with respect to their

online games League of Legends and Defense of the Ancients 2.

These two patents were previously asserted against, and then licensed

to, Microsoft, Sony, and Activision.

In 2018, Valve Corporation moved to transfer the litigation from Delaware to the Western

District of Washington.

Such motion was granted by the court.

Company may be included in legal proceedings, claims and assessments arising in the ordinary course of business.

The Company evaluates

the need for a reserve for specific legal matters based on the probability of an unfavorable outcome and the reasonability of

an estimable loss.

No reserve was deemed necessary as of December 31, 2020.

Sale of Secured

Communications Assets

February 24, 2020, the Company 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 the Company

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, the Company 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 and was recorded under other current assets

in the consolidated balance sheets as of December 31, 2020.

The Amended and Restated Agreement also provides for a revenue sharing

arrangement, pursuant to which the Company is 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.

The gain on the Asset

Sale was recorded in the statements of operations for the year ended December 31, 2020.

The sale of the Secured Communications

Assets did not meet the requisite criteria to constitute discontinued operations or held for sale, as the historical results of

Company’s secured communications business were not material to its results of operations.

Subsequent Events

On February 21, 2020, we entered into an

Asset Purchase Agreement (the “SecureCo Purchase Agreement”) with SecureCo, LLC (“SecureCo”), whereby we

agreed to sell substantially all of the assets related to our secure communications business, which includes communication solutions

and operations capabilities with respect to the development and commercialization of secure messaging and data applications, software

and middleware for enterprise and government client targets (the “Secure Communications Assets”), to SecureCo for a

cash purchase price of approximately $540,000, which is comprised of a base purchase price of $500,000 plus the reimbursement or

waiver of certain severance expenses payable by the Company to certain former executive officers.

In addition, we shall be entitled

to receive a transition service fee of five percent (5%) of all revenue received by SecureCo or its Affiliates pursuant to certain

unassignable contracts.

The closing of the sale of the Assets

is subject to the fulfilment of certain conditions by the Company and SecureCo, including, among other things, a condition that SecureCo shall

have received financing that is sufficient to fund the purchase price.

If the transaction is consummated, we do not

expect to continue to pursue secured communications products or technology implementation services as part of our overall

business strategy.

If the transaction is not consummated , we expect to take a measured

approach with respect to the potential commercialization of these products in a fiscally responsible manner.

Management has evaluated subsequent events

or transactions occurring through the date the consolidated financial statements were issued and determined that no other events

or transactions are required to be disclosed herein.

January 13, 2021, the Note, with an aggregate principal amount of $506,500 was fully forgiven by the SBA and the Lender in compliance

with the provisions of the CARES Act.

has evaluated subsequent events or transactions occurring through the date the consolidated financial statements were issued and

determined that no other events or transactions are required to be disclosed herein.

CHANGES IN AND

1 unchanged sentence

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