PALTALK INC

Other than as set forth below, there were no material changes to the Risk Factors disclosed in “Item 1A. Risk Factors” in the Form 10-K during the three months ended September 30, 2024. For more information concerning our risk factors, please see “Item 1A. Risk Factors” in the Form 10-K.

The Mergers may not be completed, and the Merger Agreement may be terminated in accordance with its terms, which could negatively impact the Company.

On August 11, 2024, we entered into the Merger Agreement with Newtek to acquire NTS through a two-step merger process. The consummation of the Mergers is subject to a number of conditions, including, among others, (i) the Paltalk Stockholder Approval, (ii) the absence of any governmental order enjoining or otherwise prohibiting the performance of the Merger Agreement or any of the transactions contemplated thereby, (iii) the absence of a Material Adverse Effect (as defined in the Merger Agreement) on the Company or NTS, (iv) receipt by Newtek from the Federal Reserve of regulatory approval or a non-objection notice relating to the Mergers and the transactions related thereto, and (v) the completion of the Divestiture.

These closing conditions may not be fulfilled in a timely manner or at all, and, accordingly, the Mergers may not be consummated. Any delay in completing the Mergers could cause us not to realize, or to be delayed in realizing, some or all of the benefits that we expect to achieve if the Mergers are successfully consummated within our expected timeframe.

In addition, Newtek and the Company can mutually decide to terminate the Merger Agreement at any time, before or after Paltalk Stockholder Approval.

If the Mergers are not completed for any reason, including as a result of our stockholders declining to approve the Parent Stock Issuance or the Divestiture, we would be subject to a number of risks, including the following:

Even if the Mergers are consummated, we may not be able to effectively integrate the businesses of NTS, or realize the anticipated benefits and synergies expected from the Mergers.

The success of the Mergers and the transactions contemplated thereby will depend, in part, on our ability to realize the anticipated benefits from acquiring NTS and its business. The anticipated benefits and estimates of future growth, synergies, and optimizations of the Mergers may not be realized fully or at all, may take longer to realize than expected, may not be realized or could have other adverse effects that we do not currently foresee. The failure to realize the anticipated benefits and synergies expected from the Mergers could adversely affect our business, financial condition and operating results.

In addition, the acquisition of NTS is complex, costly and time consuming, and we have devoted, and will continue to devote, significant management attention and resources to integrating the respective business practices and operations of NTS. Potential difficulties that we may encounter as part of the integration process include the following:

Any of these issues could adversely affect our ability to maintain relationships with customers, suppliers, employees and other constituencies or achieve the anticipated benefits of the Mergers or could negatively impact our earnings or otherwise adversely affect our business and financial results.

The announcement and pendency of the Mergers and the other transactions contemplated by the Merger Agreement, including the Divestiture, whether or not completed, may adversely affect our business.

The announcement and pendency of the Mergers, including the Divestiture, may adversely affect the trading price of our common stock, our business or our relationships with our users, consultants and employees. Third parties may be unwilling to enter into material agreements with respect to our business in light of the proposed transactions. In addition, new or existing customers, suppliers and business partners of NTS may prefer to enter into agreements with NTS’ competitors who have not expressed an intention to sell their business because customers, suppliers and business partners may perceive that such new relationships are likely to be more stable. Additionally, our employees may become concerned about the future of our business and NTS and lose focus or seek other employment.

Uncertainties associated with the Mergers may cause a loss of management personnel and other key employees, which could adversely affect our future business and operations.

We are dependent on the experience and industry knowledge of our officers and other key employees to execute our business plans. Our success after the Mergers will depend in part upon our ability to retain key management personnel and other key employees. Current and prospective employees may experience uncertainty about their roles within our company or other concerns regarding the operations of our company following the transactions, any of which may have an adverse effect on our ability to retain or attract key management and other key personnel.

In addition, the loss of key personnel could diminish the anticipated benefits of the Mergers and cause the integration of NTS to be more difficult. Furthermore, we may have to incur significant costs in identifying, hiring and retaining replacements for departing employees and may lose significant expertise and talent relating to the business of our company and NTS. We may not be able to retain or attract key management personnel and other key employees of NTS to the same extent that we have previously been able to retain or attract our own employees.

Through the Mergers, we are attempting to enter a new line of business which is highly competitive.

Through the Mergers, we are acquiring NTS’s operations. Entering a new line of business has many risks, including the ability to generate sufficient revenue to fund operations in the future. While we believe we have sufficient capital to cover integration expenses, we may have to fund NTS’s operations from cash on hand until sales are sufficient to fund ongoing operations. A new business line may never generate significant revenues, bring products and services to market or have enough sales to be profitable, as the case may be. With respect to any new line of business, we may have competitors that are better established in the market, have greater experience with such line of business or have greater resources than we do. We anticipate that products and services of NTS will be developed for and distributed to the market, but there can be no guaranty that sufficient revenue to support operations will ever be generated. Furthermore, certain of our current employees may have limited experience with dedicated server hosting, cloud hosting, data storage, managed security, backup and disaster recovery, and other related services and may have limited experience with respect to any other line of business we may enter into as we seek to expand NTS’s operations.

Sales of substantial amounts of shares of our common stock following the Mergers, including shares issuable upon conversion of the Preferred Stock, could depress our stock price.

The market price of our common stock may fluctuate significantly following completion of the Mergers, and holders of our common stock could lose some or all of the value of their investment. Our historic stockholders may decide to reduce their investment in our Company as a result of the changes to our business in connection with the Mergers. These sales of our common stock (or the perception that these sales may occur) could have the effect of depressing the market price for our common stock. In addition, our financial position after completion of the Mergers may differ from our financial position before the completion of the Mergers, and our results of operations and/or cash flows after the completion of the Mergers may be affected by factors different from those currently affecting our results of operations and/or cash flows, all of which could adversely affect the market price of our common stock. Furthermore, the stock market has experienced significant price and volume fluctuations recently, which, if such fluctuations continue to occur, could have a material adverse effect on the market for, or liquidity of, our common stock, regardless of our actual operating performance.

Following the consummation of the Mergers and the issuance of the Merger Closing Stock Consideration, Newtek would beneficially own 30.2% of the Company’s common or common-equivalent equity (on an as-converted and fully-diluted basis), calculated based on the number of shares of the Company’s common stock outstanding as of November 8, 2024. As a holder of Preferred Stock, Newtek generally will not have voting rights, except with respect to certain protective matters, such as amendments to the Company’s Amended and Restated Certificate of Incorporation, as amended, or the Certificate of Designations designating the Preferred Stock that significantly and adversely affect the preferences, rights, privileges or powers of the Preferred Stock. The Preferred Stock is convertible into common stock only upon certain qualifying transfers to third parties. The shares of our common stock issuable upon conversion of the Preferred Stock issued to Newtek (the will become freely tradable once registered pursuant to the Registration Rights Agreement between us and Newtek, which will become effective at the closing of the Mergers. Once registered, the shares of common stock underlying the Preferred Stock held by Newtek will have no restrictions, other than described below, and such shares generally will not require further registration under the Securities Act, provided, however, that any stockholders who are deemed to be affiliates of us will be subject to the resale restrictions of Rule 144 under the Securities Act.

Pursuant to the Registration Rights Agreement, Newtek will be subject to certain lockup and transfer restrictions with respect to the Preferred Stock for one year following the closing of the Mergers. Following this lockup period, Newtek may wish to dispose of some or all of its interests in the Company, and as a result may seek to sell its shares of Preferred Stock. Any such sale (or the perception that any such a sale may occur), coupled with the increase in the outstanding number of shares of our common stock following the conversion of the Preferred Stock upon transfer, may affect the market for, and the market price of, shares of common stock in an adverse manner.

We may be the target of securities class action and derivative lawsuits, which could result in substantial costs and may delay or prevent the Mergers or the Divestiture from being completed.

Securities class action lawsuits and derivative lawsuits are often brought against companies that have entered into acquisition agreements. Defending against these claims can result in substantial costs and divert management time and resources, even if the lawsuits are without merit. An adverse judgment could result in monetary damages, which could have a negative impact on our business, results of operations and financial condition. Additionally, if a plaintiff is successful in obtaining an injunction prohibiting completion of the Mergers or the Divestiture, the injunction may delay or prevent the Mergers or the Divestiture, as applicable, from being completed, which may adversely affect our business, results of operations and financial condition.