INTELLIGENT PROTECTION MANAGEMENT CORP. 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to provide a reader of our financial statements with a narrative from the perspective of our management on our financial condition, results of operations, liquidity and certain other factors that may affect our future results. The following discussion and analysis should be read in conjunction with: (i) the accompanying unaudited condensed consolidated financial statements and notes thereto for the three months ended March 31, 2025 and 2024, (ii) the consolidated financial statements and notes thereto for the year ended December 31, 2024 included in our Annual Report on Form 10-K (the “Form 10-K”) filed with the Securities and Exchange Commission (the “SEC”) on March 24, 2025 and (iii) the discussion under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the Form 10-K. Aside from certain information as of December 31, 2024, all amounts herein are unaudited. Forward-Looking Statements In addition to historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. See “Forward-Looking Statements.” Our results and the timing of selected events may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those discussed under “Item 1A. Risk Factors” in Part II of this report and “Item 1A. Risk Factors” in the Form 10-K. Overview We provide a comprehensive range of IT-related services, including dedicated server hosting, cloud hosting, data storage, managed security, backup and disaster recovery, and other related services including consulting and implementing technology solutions for large enterprise and commercial clients across the United States as well as small-and-medium sized businesses. We continue to sell our ManyCam software, which is a live streaming software and virtual camera that allows users to deliver professional live videos on streaming platforms, video conferencing apps and distance learning tools. We have an over 20-year history of technology innovation and hold eight patents. Our IT and Cloud-Based Solutions We sell and provide a range of services across five core areas, each as further described below: managed IT security services, professional services, procurement services, secure private cloud hosting, managed backup and disaster recovery and web hosting. Managed IT Security Services Our managed IT security services provide clients with ongoing management and support of their IT systems and services under a subscription or contract-based model. Our managed IT security services include proactive monitoring, regular system maintenance, comprehensive cybersecurity management, data backup, and disaster recovery, as well as help desk support for users. Professional Services Our professional services include the design and implementation of a wide range of IT products and services, such as cybersecurity, software planning, IT infrastructure, data center design and configuration, designing and implementing on-premises, hybrid or cloud computing solutions, website development, developing or integrating systems and software and IT cost management. 22 Procurement Services We offer two types of procurement services to our customers. We can either: (i) obtain software and hardware products on behalf of our customers, in which case our vendors drop ship the products to our end customer, or (ii) obtain hardware or software on behalf of our customers and perform additional configuration and/or add additional inputs to the products before the products are shipped to our customer. In the instance where we sell hardware and software products as a solution bundled with services, we typically obtain the products or software from our vendors, add the additional inputs/configuration as detailed in the customer contract, and then ship the products to the end customer. Secure Private Cloud Hosting Our secure private cloud hosting offerings include a digital infrastructure which consists of dedicated and fully isolated cloud environments designed to deliver security, control and compliance for the business-critical applications and client data. We operate a secure private cloud from private suites in completely isolated areas that are leased within two Tier 3 data center facilities located in Phoenix, Arizona, and Edison, New Jersey (the “Data Centers”), pursuant to license agreements that extend until 2027 and 2026, respectively. Although we do not own or operate the Data Centers, we aim to use the high-level operations and standards provided by the Data Centers through our license agreements to provide our customers with secure and flexible cloud services. We leverage state-of-the-art security measures, including data encryption, network segmentation, advanced firewalls, multi-factor authentication and continuous monitoring to safeguard against unauthorized access and cyber threats. We believe our secure private cloud hosting provides our clients with strong availability, data integrity and reliable performance, while meeting stringent compliance requirements. Our secure private cloud hosting solutions are backed by 24/7 support from our expert team, with the goal of delivering secure, flexible and resilient infrastructure tailored to each client’s unique business needs. In the future, we plan to make arrangements with third parties to incorporate AI features into our secure private cloud offerings. Managed Backup and Disaster Recovery Our managed backup and disaster recovery solutions provide comprehensive protection for customers’ critical data and IT infrastructure, which is intended to ensure business continuity and rapid recovery in the event of data loss, cyberattacks or system failures. We utilize advanced backup technologies with automated, regular data backups, off-site replication and secure storage to prevent data corruption or loss. Web Hosting Our web hosting services consist of several advanced security measures, including Secure Sockets Layer and Transport Layer Security (“SSL/TLS”) encryption, firewalls, distributed denial-of-service (“DDoS”) protection, malware scanning, and secure server configurations. Our web hosting services include features such as regular data backups, web application firewalls, strict access control policies and continuous monitoring and expert support, all of which are intended to ensure our customers’ compliance with industry standards and provide a reliable and secure environment for our customers’ online presence. Revenue from web hosting is included with managed information technology revenue in the statement of operations. Our ManyCam Software Product We also support our ManyCam software, which is a live streaming software and virtual camera that allows users to deliver professional live videos on streaming platforms, video conferencing apps and distance learning tools. The ManyCam software provides multiple camera feeds, backgrounds and effects while also enabling users to share presentations, spreadsheets and documents. We are integrating ManyCam as an offering for our new customers and seek to optimize our cross-selling efforts of ManyCam with our other technology solutions. 23 Recent Developments The Acquisition On January 2, 2025 (the “Closing Date”), we completed the acquisition of Newtek Technology Solutions, Inc., a New York corporation (“NTS”), pursuant to that certain Agreement and Plan of Merger (the “Acquisition Agreement”), by and among us, PALT Merger Sub 1, Inc., a New York corporation and our direct and wholly owned subsidiary (“First Merger Sub”), PALT Merger Sub 2, LLC, a Delaware limited liability company and our direct and wholly owned subsidiary (“Second Merger Sub”), NTS and NewtekOne, Inc., a Maryland corporation and the sole stockholder of NTS (“Newtek”). Pursuant to the terms of the Acquisition Agreement, on the Closing Date: (i) NTS merged with and into First Merger Sub, with NTS continuing as the surviving entity (the “Interim Surviving Entity” and such merger, the “First Step Merger”), and (ii) immediately following the consummation of the First Step Merger, the Interim Surviving Entity merged with and into Second Merger Sub (the “Second Step Merger” and, together with the First Step Merger, the “Acquisition”), with the Second Merger Sub surviving as our wholly owned subsidiary (in such capacity, the “Surviving Entity”). Following the closing of the Acquisition (the “Acquisition Closing”), we changed our name from “Paltalk, Inc.” to “Intelligent Protection Management Corp.” The aggregate consideration we delivered to Newtek at the Acquisition Closing consisted of (i) $4,000,000 in cash (as adjusted pursuant to the Acquisition Agreement, the “Acquisition Closing Cash Consideration”) and (ii) 4,000,000 shares of our Series A Non-Voting Common Equivalent Stock (the “Series A Preferred Stock” and such shares issued at the Acquisition Closing, the “Acquisition Closing Stock Consideration” and together with the Acquisition Closing Cash Consideration, the “Acquisition Closing Consideration”). The Series A Preferred Stock will automatically convert into one share of our common stock, par value $0.001 per share (subject to certain customary anti-dilution adjustments), upon the occurrence of certain qualifying transfers by Newtek to third parties. In addition to the Acquisition Closing Consideration, Newtek is entitled to earn-out payments under certain circumstances. For more information, see the “ Liquidity and Capital Resources ” section below. The Divestiture On the Closing Date and prior to the Acquisition Closing, we completed the sale to Meteor Mobile Holdings, Inc., a Delaware corporation (“Meteor Mobile”), of our telecommunications services provider, “Vumber”, as well as our “Paltalk” and “Camfrog” applications and certain assets and liabilities related to such services provider and applications (the “Transferred Assets” and such sale, the “Divestiture” and, together with the Acquisition, the “Transactions”) pursuant to that certain Asset Purchase Agreement (the “Divestiture Agreement”), by and among the us, our wholly owned subsidiaries Paltalk Holdings, Inc. (“Paltalk Holdings”), Paltalk Software, Inc., Camshare, Inc., A.V.M. Software, Inc., and Vumber, LLC (collectively, the “Sellers”), and Meteor Mobile. As a result of the Divestiture, we are no longer engaged in the business of providing video-based, live streaming, virtual camera and telecommunications software to consumers, as and to the extent such businesses were previously conducted by us pursuant to the “Vumber,” “Paltalk” and “Camfrog” applications (the “Business”). In addition, prior to the Acquisition Closing, we ceased all operations of our “Tinychat” service and application. The consideration delivered by Meteor Mobile to us at the closing of the Divestiture consisted of (i) $1,350,000 in cash and (ii) the assumption of all of the liabilities of the Sellers arising out of, or relating to, the Business or the Transferred Assets, other than certain excluded liabilities (the “Divestiture Closing Consideration”). In connection with the Divestiture, we are entitled to earn-out payments under certain circumstances. For more information, see the “ Liquidity and Capital Resources ” section below. Board Appointments Pursuant to the Acquisition Agreement, we agreed to cause one representative nominated by Newtek (the “Newtek Representative”) to be appointed to our Board of Directors (the “Board”) promptly following the closing of the Acquisition. Newtek designated Barry Sloane, who is currently Newtek’s Chairman, Chief Executive Officer and President, as the Newtek Representative. Effective as of January 7, 2025, the Board increased the size of the Board from five (5) directors to seven (7) directors and appointed Mr. Sloane to the Board. Mr. Sloane was not appointed to any committee of the Board. In order for the majority of the Board to be comprised of independent directors in accordance with Rule 5605(b) of the listing rules of The Nasdaq Stock Market, LLC and as a result of his expertise in cloud infrastructure and applications and artificial intelligence, the Board also appointed Sidney Rabsatt to the Board, effective as of January 7, 2025. Mr. Rabsatt was also appointed to serve on the Strategic Transactions Committee of the Board. 24 Business Loan Agreement and Credit Agreement and Revolving Promissory Note On April 10, 2025, we, Intelligent Protection LLC, our wholly owned subsidiary (“IPM LLC”), and Newtek Bank, National Association (“Newtek Bank”), a subsidiary of Newtek, entered into that certain business loan agreement and that certain credit agreement and revolving promissory note (together, the “Loan Agreements”), which provide for a secured revolving line of credit to us and IPM LLC in the maximum amount of $1,000,000 on the terms and conditions set forth in the Loan Agreements (the “Facility”). The Loan Agreements are secured by substantially all of our assets and the assets of IMP LLC. The Facility will mature on April 10, 2026. As of the date of this Quarterly Report on Form 10-Q, no amounts were outstanding under the Facility. Stock Repurchase Plan On May 8, 2025, the Board approved a stock repurchase plan for up to $400,000 of our outstanding common stock (the “Stock Repurchase Plan”), which expires on the one-year anniversary of such date. Shares may be repurchased from time-to-time in open market transactions at prevailing market prices, in privately negotiated transactions or by other means in accordance with federal securities laws, including Rule 10b5-1 programs, and the Stock Repurchase Plan may be suspended or discontinued at any time. The actual timing, number and value of shares repurchased will be determined by a committee of the Board at its discretion and will depend on a number of factors, including the market price of our common stock, general market and economic conditions, alternative investment opportunities and other corporate considerations. As of the date of this report, no shares of common stock had been repurchased pursuant to the Stock Repurchase Plan. First Quarter 2025 Operational Highlights Operational highlights during the three months ended March 31, 2025: ● completed the Transactions and, as a result, focused our business on technology service offerings in the cloud infrastructure and cybersecurity sectors; ● expanded our Board to align with our business following the Transactions; ● for the three months ended March 31, 2025 revenue totaled $5.5 million compared to $0.3 million for the prior year period, as the prior year revenue represented subscriptions sales from ManyCam software, our continuing operations and did not include revenue from discontinued operations. Revenue from subscription sales increased by approximately 4% from the prior year period; ● loss from continuing operations for the three months ended March 31, 2025 was $1.3 million and included $0.9 million of non-cash expense, consisting of amortization and depreciation of $0.7 million, (of which $0.4 million represents amortization on newly acquired intangible assets) as well as $0.2 million of non-cash share based compensation, compared to a net loss from continuing operations of $1.0 million for the three months ended March 31, 2024, which included subscriptions sales from ManyCam software as well as all of our general and administrative expenses, which included all professional fees and public company expenses; ● net income for the three months ended March 31, 2025 totaled $0.8 million compared to a net loss of $0.5 million for the three months ended March 31, 2024. Net income was attributed to us recording an income tax benefit during the quarter of approximately $2.1 million in connection with the Transactions; ● Adjusted EBITDA for the three months ended March 31, 2025 remained relatively unchanged at negative $0.5 million; ● we had cash provided by operations of $1.7 million; and ● at March 31, 2025 we had $9.7 million of cash and cash equivalents on our balance sheet and no long-term debt. 2025 Business Objectives For the near term, our business objectives include: ● continuing the integration of our comprehensive range of IT-related solutions; ● incorporating ManyCam as an offering for our new customers and seek to optimize our cross-selling efforts with our other technology solutions; ● continuing to explore strategic opportunities, including, but not limited to, potential mergers or acquisitions of other assets or entities that are synergistic to our businesses; and ● continuing to defend our intellectual property. 25 Sources of Revenue Our main sources of revenue are described below: Managed IT Security Services Customers pay for our managed IT security services on a subscription or contract-based model. Customers typically pay a recurring fee, which is generally based on service level agreements that define the specific services and performance metrics. Professional Services Customers are invoiced for our professional services either based on a time and materials basis or on a straight-line basis for all fixed fee arrangements. We are the principal in these transactions as we control the specified good or service before it is transferred to the customer. Additionally, we are primarily responsible for fulfillment of the order and have pricing discretion. As a result, we recognize revenue from our professional services revenue on a gross basis. Procurement Services Our procurement services include either (i) obtaining software and hardware products on behalf of our customers, in which case our vendors drop ship the products to our end customer, or (ii) obtaining hardware or software on behalf of our customers and performing additional configuration and/or add additional inputs to the products before the products are shipped to our customer. For both types of procurement services each customer has their own negotiated contract and payment terms. If a customer orders both hardware and additional configurations to those laptops, typically these will both be covered under separate contracts. The services provided are considered distinct as the additional configurations are not required for the hardware purchased to operate effectively. Customers are invoiced, and revenue is recognized, when the hardware purchased is shipped, as control transfers to the customer free on board (“FOB”) shipping point. We are an agent in these transactions because we (i) do not obtain control over the product as products are drop shipped from their vendors directly to the customer; (ii) have no inventory risk and (iii) have general pricing discretion in our transactions with customers. Our pricing discretion is limited by the going market rate of our services offered by other providers. Based on this assessment, we recognize revenue from procurement services on a net basis. Additionally, certain procurement contracts with customers include promises to transfer multiple products and services to a customer. Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment. Secure Private Cloud Hosting When a cloud-based service includes both on-premises software licenses and cloud services, judgment is required to determine whether the software license is considered distinct and accounted for separately, or not distinct and accounted for together with the cloud service and recognized over time. Certain cloud services depend on a significant level of integration, interdependency, and interrelation between the desktop applications and cloud services, and are accounted for together as one performance obligation. Revenue from such cloud services is recognized ratably over the period in which the cloud services are provided. Our secure private cloud offerings include a digital infrastructure which consists of servers which are dedicated to a single customer. We offer secure private cloud offerings through our Data Centers as well as off premise. Our secure private cloud offerings typically are one performance obligation where we are providing the cloud storage to the customer and customers pay a monthly fixed fee for the service. Managed Backup and Disaster Recovery Pricing for our managed backup and disaster recovery solutions is based upon the customer contract and depends on the amount of backup storage needed. Customers are typically charged set rates per the contract and are charged monthly based on usage. There are typically no upfront fees for these contracts. Customers are invoiced and revenue is recognized on a monthly basis. 26 Web Hosting Each customer of our web hosting solutions has their own contract and payment terms. Contract duration is typically between 1-4 years, although the term may vary based on the customer’s needs. Web hosting services customers pay a monthly fee and there are typically no upfront costs associated with web hosting services. Customers are invoiced and revenue is recognized on a monthly basis. Revenue Recognition Our revenue is measured based on the consideration specified in a contract with a customer. Our contracts with customers often include promises to transfer multiple products and services. Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment. When a cloud-based service includes both on-premises software licenses and cloud services, judgment is required to determine whether the software license is considered distinct and accounted for separately, or not distinct and accounted for together with the cloud service and recognized over time. Certain cloud services depend on a significant level of integration, interdependency, and interrelation between the desktop applications and cloud services, and are accounted for together as one performance obligation. Revenue from cloud services is recognized ratably over the period in which the cloud services are provided. We otherwise recognize revenue when it satisfies a performance obligation by transferring control of a product or service or by arranging for the sale of a vendor’s products or service to a customer. We recognize revenue from sale of services as they perform the underlying services, typically based on time and materials basis based upon hours incurred for the performance completed to date for which we have the right to consideration. We recognize revenue on sales of goods at a point in time when customer takes control of goods, which typically occurs when title and risk of loss have passed to the customer. We recognize revenue on a gross basis for each of its services and product offerings principally because it is primarily responsible for fulfilling the promise to provide specified goods or service and it has discretion in establishing the price of specified good or service. We classify our right to consideration in exchange for deliverables as either a receivable or a contract asset (unbilled receivable). A receivable is a right to consideration that is unconditional ( i.e. , only the passage of time is required before payment is due). For example, we recognize a receivable for revenue related to our transaction or volume-based contracts when earned regardless of whether amounts have been billed. Such receivables will be presented in accounts receivable, net in our consolidated balance sheets. We maintain an allowance for credit losses to provide for the estimated amount of receivables that may not be collected. The allowance is based upon an assessment of customer creditworthiness, historical payment experience, the age of outstanding receivables, judgment, and other applicable factors. A contract asset is a right to consideration that is conditional upon factors other than the passage of time. Contract assets will be presented in “current and other assets” in our consolidated balance sheets and primarily relate to unbilled amounts on fixed-price contracts utilizing the output method of revenue recognition. Our contract assets and liabilities are reported at the end of each reporting period. The difference between the opening and closing balances of the contract assets and deferred revenue primarily results from the timing difference between performance obligations and the customer’s payment. We receive payments from customers based on the terms established in their contracts, which may vary generally by contract type. Our contract assets and liabilities are reported in a net position on a contract-by-contract basis at the end of each reporting period. The difference between the opening and closing balances of the contract assets and deferred revenue primarily results from the timing difference between performance obligations and the customer’s payment. We receive payments from customers based on the terms established in their contracts, which may vary generally by contract type. 27 We sell hardware and software products on both a stand-alone basis without any services and as a solution bundled with services. When we provide a combination of hardware and software products with the provision of services, we separately identify our performance obligations under the contract and the hardware and/or software products or services that will be provided. The total transaction price for an arrangement with multiple performance obligations is allocated at contract inception to each performance obligation in proportion to the stand-alone selling price of the hardware or software. The selling price is the price at which we would sell a promised good or service separately to a customer. We estimate the price based on observable inputs, including direct labor hours and allocatable costs, or use observable stand-alone prices when they are available. Our professional services include the design and implementation of a wide range of IT products and services. Such services are typically provided by us or third-party subcontractor vendors on a stand-alone basis. We also generate subscription revenue from monthly premium subscription services for our ManyCam software. Subscription revenues are presented net of refunds, credits, and known and estimated credit card chargebacks. During the three months ended March 31, 2025 and 2024, subscriptions were offered in durations of twelve-month and twenty four-month terms. All subscription fees, however, are paid by credit card at the origination of the subscription regardless of the term of the subscription. Revenues from multi-month subscriptions are recognized on a straight-line basis over the period where the service is offered to the customer, indicated by length of the subscription term purchased. The unearned portion of subscription revenue is presented as deferred revenue in the accompanying condensed consolidated balance sheets. Strategy We believe that the scale of our user base presents a competitive advantage in the video social networking industry and provides growth opportunities to advance our existing products with up-sell opportunities and build future brands with cross-sell offers. We also believe that our proprietary consumer app technology platform can scalably support large communities of users in activities such as video, voice and text chat, online card games and board games and provide robust user monetization tools. Our continued growth depends on attracting new consumer application users through the introduction of new applications, features and partnerships and further penetration of our existing markets. Our principal growth strategy is to invest in the development of proprietary software, expand our sales and marketing efforts with respect to such software, and increase our consumer application user base through potential platform partnerships and new and existing advertising campaigns that we run through internet and mobile advertising networks, all while balancing the capital needs of the business. Our strategy also includes the acquisition of, or investment in, technologies, solutions or businesses that complement our business and cross-selling them to additional synergistic businesses. Our strategy is to approach these opportunities in a measured way, being mindful of our resources and evaluating factors such as potential revenue, time to market and amount of capital needed to invest in the opportunity. Costs and Expenses 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, data center rent, bandwidth costs and, in the case of procurement, revenue the cost of the hardware and/or subscriptions. Cost of revenue also includes compensation and other employee-related costs for technical personnel, consultants and subcontracting costs relating to technology service revenue. Sales marketing and product development expense Sales marketing and product development expense consists primarily of (i) advertising expenditures and compensation (including stock-based compensation) and other employee-related costs for personnel and consultants engaged in sales and sales support marketing and development functions and (ii) development of the technology of our applications, and consultant-related costs that are not capitalized for personnel engaged in the design, testing and enhancement of service offerings. 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 our brands. 28 General and administrative expense General and administrative expense consists primarily of compensation (including non-cash stock-based compensation) and other employee-related costs for personnel engaged in executive management, finance, legal, tax and human resources and facilities costs and fees for other professional services and cost of insurance. General and administrative expense also includes amortization of intangible assets. Depreciation and amortization expense Depreciation and amortization expenses consists primarily of amortization of intangible assets as well as depreciation on property and equipment. Factors Affecting the Comparability of Our Financial Condition and Results of Operations As described above in the “ Recent Developments ” section, during the three months ended March 31, 2025, we completed the Transactions. As a result, our historical financial condition and results of operations for the periods presented may not be comparable, either from period to period or going forward. For more information on the Transactions, see Note 3, Acquisition and Note 6, Discontinued Operations, in Part I, Item 1, Financial Statements, of this Form 10-Q. Key Metrics Our management relies on certain non-GAAP financial measures to manage and evaluate our business. The non-GAAP financial measures set forth below help us evaluate growth trends, establish budgets, measure the effectiveness of our advertising and marketing efforts and assess operational efficiencies. We also discuss net cash provided by operating activities under the “ Liquidity and Capital Resources ” section below. Adjusted EBITDA is discussed below. Three Months Ended March 31, (unaudited) 2025 2024 Net cash provided by (used in) operating activities – continuing operations $ 1,744,783 $ (335,786 ) Loss from continuing operations $ (1,333,927 ) $ (1,005,009 ) Loss from continuing operations as a percentage of total revenues (24.2 )% (370.1 )% Net income (loss) from continuing operations $ 808,530 $ (254,315 ) Net income (loss) from continuing operations as a percentage of total revenues 14.7 % (93.6 )% Net income (loss) $ 808,530 (492,307 ) Net income (loss) as a percentage of total revenue 14.7 % (181.3 )% Adjusted EBITDA $ (482,257 ) $ (497,297 ) Adjusted EBITDA as percentage of total revenues (8.7 )% (183.1 )% Adjusted EBITDA Adjusted EBITDA is a non-GAAP financial measure. Adjusted EBITDA is defined as net income (loss) adjusted to exclude interest (income) expense, net, other (income) expense, net, income tax (benefit) expense, depreciation and amortization expense, stock-based compensation expense and net loss from discontinued operations. We present Adjusted EBITDA because it is a key measure used by our management and Board to understand and evaluate our core operating performance and trends, to develop short- and long-term operational plans and to allocate resources to expand our business. In particular, the exclusion of certain expenses in calculating Adjusted EBITDA can provide a useful measure for period-to-period comparisons of the cash operating income generated by our business. We believe that Adjusted EBITDA is useful to investors and others to understand and evaluate our operating results, and it allows for a more meaningful comparison between our performance and that of competitors. 29 Limitations of Adjusted EBITDA Our use of Adjusted EBITDA has limitations as an analytical tool, and you should not consider this performance measure in isolation from or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are that Adjusted EBITDA does not reflect, among other things: cash capital expenditures for assets underlying depreciation and amortization expense that may need to be replaced or for new capital expenditures; interest income, net; other expense, net; the potentially dilutive impact of stock-based compensation; the provision for income taxes; and net loss from discontinued operations. Other companies, including companies in our industry, may calculate Adjusted EBITDA differently, which reduces its usefulness as a comparative measure. Because of these limitations, you should consider Adjusted EBITDA alongside other financial performance measures, including various cash flow metrics, net income (loss) and our other GAAP results. The following table presents a reconciliation of net income (loss), the most directly comparable financial measure calculated and presented in accordance with GAAP, to Adjusted EBITDA for each of the periods indicated: Three Months Ended March 31, (unaudited) 2025 2024 Reconciliation of net income (loss) to Adjusted EBITDA: Net income (loss) $ 808,530 $ (254,315 ) Net loss from discontinued operations -- (237,992 ) Interest income, net (82,392 ) (151,984 ) Income tax expense, discontinued operations -- 480,810 Income tax benefit (2,060,065 ) (598,710 ) Depreciation and amortization expense 684.041 205,583 Stock-based compensation expense 167,629 59,311 Adjusted EBITDA $ (482,257 ) $ (497,297 ) Results of Operations The following table sets forth condensed consolidated statements of operations data for each of the periods indicated as a percentage of total revenues: Three Months Ended March 31, (unaudited) 2025 2024 Total revenue 100.0 % 100.0 % Costs and expenses: Cost of revenue 44.7 % 22.7 % Sales marketing and product development expense 13.9 % 97.9 % General and administrative expense 53.2 % 273.8 % Depreciation and amortization 12.4 % 75.7 % Total costs and expenses 124.2 % 470.1 % Loss from continuing operations (24.2 )% (370.1 )% Interest income, net 1.5 % 56.0 % Loss from continuing operations before income tax benefit (22.7 )% (314.1 )% Income tax benefit 37.4 % 220.5 % Net income (loss) from continuing operations 14.7 % (93.6 )% Loss from discontinued operations, net of income tax expense of $480,810 -- (87.7 )% Net income (loss) 14.7 % (181.3 )% 30 Three Months Ended March 31, 2025 Compared to Three Months Ended March 31, 2024 Revenue Total revenue increased by 1931.9% to $5,518,038 for the three months ended March 31, 2025 from $271,572 for the three months ended March 31, 2024. This increase was driven by new revenue streams acquired in connection with the Acquisition and the fact that revenue for the prior year period did not include revenue from discontinued operations. The following table sets forth our total revenue for the three months ended March 31, 2025 and the three months ended March 31, 2024, the increase between those periods, the percentage increase between those periods, and the percentage of total revenue that each represented for those periods: % Revenue Three Months Ended Three Months Ended March 31, (unaudited) $ % March 31, (unaudited) 2025 2024 Increase Increase 2025 2024 Managed information technology $ 3,558,833 -- 3,558,833 -- 64.5 % -- Procurement revenue 951,379 -- 951,379 -- 17.2 % -- Professional services revenue 726,607 -- 726,607 -- 13.2 % -- Subscription revenue 281,219 271,572 9,647 3.6 % 5.1 % 100.0 % Total revenues $ 5,518,038 $ 271,572 $ 5,246,466 1931.9 % 100.0 % 100.0 % Our subscription revenue for the three months ended March 31, 2025 relates to the sales from our ManyCam software, which increased by $9,647, or 3.6%, as compared to the three months ended March 31, 2024. The increase in subscription revenue was primarily driven by an increase in new subscribers to our ManyCam software. Costs and Expenses Total costs and expenses for the three months ended March 31, 2025 increased by $5,575,384, or 436.7%, as compared to the three months ended March 31, 2024. The following table presents our costs and expenses for the three months ended March 31, 2025 and 2024, the increase between those periods and the percentage increase between those periods and the percentage of total revenue that each represented for those periods: % Revenue Three Months Ended Three Months Ended March 31, (unaudited) $ % March 31, (unaudited) 2025 2024 Increase Increase 2025 2024 Cost of revenue $ 2,464,663 $ 61,636 $ 2,403,027 3898.7. % 44.7 % 22.7 % Sales marketing and product development expense 765,364 265,789 499,575 188.0 % 13.9 % 97.9 % General and administrative expense 2,937,897 743,573 2,194,324 295.1 % 53.2 % 273.8 % Depreciation and amortization 684,041 205,583 478,458 232.7 % 12.4 % 75.7 % Total costs and expenses $ 6,851,965 $ 1,276,581 $ 5,575,384 436.7 % 124.2 % 470.1 % 31 Cost of revenue Our cost of revenue for the three months ended March 31, 2025 increased by $2,403,027, or 3898.7%, as compared to the three months ended March 31, 2024. This increase was primarily due to an increase in the expenses related to the new revenue streams, including but not limited to, costs associated with procurement equipment and related costs of $796,895, managed services expenses of $468,047, subscriptions and licensing of $480,278, professional and consulting costs of $363,764, web hosting expense of $154,751 and rent related to our Data Centers of $122,935. Sales marketing and product development expense Our sales marketing and product development expense for the three months ended March 31, 2025 increased by $499,575, or 188.0%, as compared to the three months ended March 31, 2024. The increase in sales marketing and product development expense for the three months ended March 31, 2024 was primarily due to an increase in salary-related expenses of approximately $512,897 and commissions of $132,915 earned by the Company’s sales team to service and grow its customer base. In addition, consulting expenses totaled $112,917 related to marketing activities. As a result of the Transactions, headcount increased from zero in the prior year period to approximately 15 people in the current period, and with their associated salary and salary-related costs are included in sales marketing and product development expense for the three months ended March 31, 2025. General and administrative expense Our general and administrative expense for the three months ended March 31, 2025 increased by $2,194,324, or 295.1%, as compared to the three months ended March 31, 2025. The increase in general and administrative expenses for the three months ended March 31, 2025 was primarily due to legal and accounting expenses of $269,415 and $264,993, respectively. In addition, the Company incurred public company expenses of $87,698, rent expense of $103,460 in connection with our office and Data Centers, insurance costs of $200,185. Salary and salary related expenses totaled $1,530,551 for the three months ended March 31, 2025, plus $167,631 of non-cash share-based compensation. As a result of the Transactions, headcount increased from four individuals in the prior year period to approximately 41 individuals in the current period, and their associated salary and salary related costs are included in general and administrative expenses for the three months ended March 31, 2025. Of the total expenses described above, approximately $334,970 were one-time expenses related to the Transactions. Non-Operating Income The following table presents the components of non-operating income for the three months ended March 31, 2025 and the three months ended March 31, 2024, the decrease between those periods and the percentage decrease between those periods and the percentage of total revenue that each represented for those periods: % Revenue Three Months Ended Three Months Ended March 31, (unaudited) $ % March 31, (unaudited) 2025 2024 (Decrease) (Decrease) 2025 2024 Interest income, net $ 82,392 $ 151,984 $ (69,592 ) (45.8 )% 1.5 % 55.9 % Total non-operating income $ 82,392 $ 151,984 $ (69,592 ) (45.8 )% 1.5 % 55.9 % Non-operating income for the three months ended March 30, 2025 was $82,392, a decrease of $69,592, or 45.8%, as compared to non-operating income of $151,984 for the three months ended March 31, 2024. The decrease was primarily a result of a decrease in the amount of principal the Company invested and at varying interest rates. 32 Income Taxes Our provision for income taxes consists of federal, foreign and state taxes, as applicable, in amounts necessary to align the Company’s year-to-date tax provision with the effective rate that it expects to achieve for the full year. For the three months ended March 31, 2025, the Company recorded an income tax benefit of $2,060,065 primarily related to a partial release of its valuation allowance as the Acquisition of NTS created a source of future taxable income allowing for the recognition of certain deferred tax assets. For the three months ended March 31, 2024, the Company recorded an income tax benefit of $598,710, consisting primarily of federal, foreign, state and local taxes. Liquidity and Capital Resources Three Months Ended March 31, (unaudited) 2025 2024 Condensed Consolidated Statements of Cash Flows Data: Net cash provided by (used in) operating activities – continuing operations $ 1,744,783 $ (335,786 ) Net cash used in investing activities (4,000,000 ) -- Net cash provided by financing activities 1,350,000 -- Net decrease in cash and cash equivalents $ (905,217 ) $ (335,786 ) Currently, our primary source of liquidity is cash on hand and cash available through the Facility. As of the date of this report, no amounts were outstanding under the Facility. We believe that our cash and cash equivalents balance, our cash available through the Facility and our expected cash flows from operations will be sufficient to meet all of our financial obligations for one year from the date these financial statements are issued. As of March 31, 2025, we had $9,683,317 of cash and cash equivalents. Our primary use of working capital is related to product development resources and investment in marketing initiatives to grow the business in order to maintain and create new services and features in applications for our clients and users. In the future, we may seek to grow our business by expending our capital resources to fund strategic acquisitions, investments and partnership opportunities. Stock Repurchase Plan On May 8, 2025, the Board approved the Stock Repurchase Plan for up to $400,000 of our outstanding common stock, which expires on the one-year anniversary of such date. We intend to utilize the Stock Repurchase Plan to minimize the dilutive impact of awards granted under our equity incentive plans and to repurchase shares opportunistically. Shares of common stock may be repurchased from time to time in open market transactions at prevailing market prices, in privately negotiated transactions or by other means in accordance with federal securities laws, including Rule 10b5-1 plans. The Stock Repurchase Plan does not obligate us to repurchase any shares of common stock, and the Stock Repurchase Plan may be modified, suspended, extended or terminated at any time by our Board. The actual timing, number and value of shares repurchased will be determined by a committee of the Board at its discretion and will depend on a number of factors, including the market price of our common stock, general market and economic conditions, alternative investment opportunities and other corporate considerations. As of the date of this report, no shares of common stock had been repurchased pursuant to the Stock Repurchase Plan. NTS Acquisition On January 2, 2025, we closed the Acquisition, pursuant to which we acquired NTS through a two-step merger process. The aggregate consideration we delivered to Newtek at the Acquisition Closing consisted of (i) $4,000,000 in cash and (ii) 4,000,000 shares of our Series A Preferred Stock. In addition to the Acquisition Closing Consideration, the Acquisition Agreement provides that Newtek is entitled to receive an amount up to $5,000,000 (the “Acquisition Earn-Out Amount”) based on our achievement of certain cumulative average adjusted EBITDA thresholds for the 2025 and 2026 fiscal years. The Acquisition Earn-Out Amount may be paid, in our sole discretion, in cash (the “Acquisition Earn-Out Cash Consideration”), in shares of Series A Preferred Stock (the “Acquisition Earn-Out Stock Consideration”) or in a combination thereof. Pursuant to the Acquisition Agreement, to the extent that all or a portion of the Acquisition Earn-Out Amount is paid in shares of Series A Preferred Stock, the number of shares of Series A Preferred Stock to be issued to Newtek will be calculated based on the average of the daily volume weighted average prices of our common stock during each trading day during a 60 calendar-day period ending on December 31, 2026; provided, that in no event shall such price be less than $1.00. Pursuant to the Acquisition Agreement, if the issuance of the Acquisition Earn-Out Stock Consideration would cause Newtek’s “total equity” (as calculated under the Bank Holding Company Act of 1956, as amended, and as implemented and interpreted by the Board of Governors of the Federal Reserve System) in us to exceed one-third of our total equity (the “Total Equity Cap”), then the number of shares of Series A Preferred Stock issuable as Acquisition Earn-Out Stock Consideration will be adjusted so that we will issue to Newtek the maximum number of shares of Series A Preferred Stock that would not cause Newtek’s total equity to exceed the Total Equity Cap, with a corresponding increase to the Acquisition Earn-Out Cash Consideration. 33 The Divestiture On January 2, 2025, we completed the sale to Meteor Mobile of the Transferred Assets. The consideration delivered by Meteor Mobile to us at the closing of the Divestiture consisted of (i) $1,350,000 in cash and (ii) the assumption of all of the liabilities of the Sellers arising out of, or relating to, the Business or the Transferred Assets, other than certain excluded liabilities. In addition to the Divestiture Closing Consideration, we are entitled to receive, with respect to each Earn-Out Period, as defined and described below, certain payments in cash based on the cash revenue, net of any refunds, received by Meteor Mobile that is attributable to the Business (such cash revenue, the “Legacy Business Revenue”), as follows: ● from the six-month period beginning on July 1, 2025 and ending on December 31, 2025 (“Earn-Out Period 1”), an amount equal to (i) for any Legacy Business Revenue greater than or equal to $3,500,000 and less than $4,250,000, the amount of such Legacy Business Revenue multiplied by 0.30 plus (ii) for any Legacy Business Revenue greater than or equal to $4,250,000, the amount of such Legacy Business Revenue in excess of $4,250,000 multiplied by 0.40; and ● from each of the twelve-month period beginning on January 1, 2026 and ending on December 31, 2026 (“Earn-Out Period 2”), the twelve-month period beginning on January 1, 2027 and ending on December 31, 2027 (“Earn-Out Period 3”), and the twelve-month period beginning on January 1, 2028 and ending on December 31, 2028 (“Earn-Out Period 4” and collectively with Earn-Out Period 1, Earn-Out Period 2 and Earn-Out Period 3, the “Earn-Out Periods”), an amount equal to (i) for any Legacy Business Revenue greater than or equal to $7,000,000 and less than $8,500,000, the amount of such Legacy Business Revenue multiplied by 0.30 plus (ii) for any Legacy Business Revenue greater than or equal to $8,500,000, the amount of such Legacy Business Revenue in excess of $8,500,000 multiplied by 0.40 (the aggregate amount, if any, earned during the Earn-Out Periods, the “Divestiture Earn-Out Amount”). In the event of a change of control (as defined in the Divestiture Agreement) of Meteor Mobile during any of the Earn-Out Periods, we are entitled to receive an acceleration payment in cash, net of any Divestiture Earn-Out Amounts previously paid to us (the “Acceleration Payment”). If any of the Transferred Assets are sold independently from the other assets of Meteor Mobile, we will be entitled to (i) 50% of the aggregate consideration paid to Meteor Mobile for the Transferred Assets minus (ii) the aggregate amount of any Divestiture Earn-Out Amounts received by the Sellers by the date of the change of control, minus (iii) the aggregate amount of any Acceleration Payments previously paid through such date. If any of the Transferred Assets are sold contemporaneously with other assets of Meteor Mobile, we are entitled to (x) the aggregate consideration paid to Meteor Mobile for the Transferred Assets multiplied by the ratio of the trailing 12-month EBITDA of the Transferred Assets sold and the EBITDA of all assets sold minus (y) the aggregate amount of any Divestiture Earn-Out Amounts received by the Sellers by the date of the change of control, minus (z) the aggregate amount of any Acceleration Payments previously paid through such date. The minimum Acceleration Payment for the sale of “Paltalk,” “Camfrog” and “Vumber” is $1,650,000, $450,000 and $300,000, respectively, and the Acceleration Payments payable to us are capped at $5,000,000 in the aggregate. Operating Activities Net cash provided by operating activities was $1,744,783 for the three months ended March 31, 2025, as compared to net cash used in operating activities of $335,786 for the three months ended March 31, 2024. The improvement in the amount of cash used in operations for the three months ended March 31, 2024 was primarily attributed to the change in the business activities of the Company following the Transactions compared to the three months ended March 31, 2024, specifically, the collection of accounts receivable (favorable by $0.2 million), the timing of payment of payables favorable by $0.7 million, as well as amounts collected by the Company during the first quarter following the Divestiture due to Meteor Mobile and paid subsequent to quarter end of $0.4 million. Investing Activities Net cash used in investing activities for the three months ended March 31, 2025 was $4,000,000 and related to the cash consideration paid by the Company to Newtek in connection with the Acquisition. There was no cash used in or provided by investing activities for the three months ended March 31, 2024. Financing Activities Net cash provided by financing activities was $1,350,000 for the three months ended March 31, 2025. There was no cash used in or provided by financing activities for the three months ended March 31, 2024. This is attributed to the $1,350,000 received in connection with the Divestiture. 34 Contractual Obligations and Commitments There have been no other material changes to our contractual obligations and commitments disclosed in the contractual obligations and commitments section of Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Form 10-K. Off-Balance Sheet Arrangements As of March 31, 2025, we did not have any off-balance sheet arrangements. Critical Accounting Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes. Future events and their effects cannot be determined with absolute certainty. Therefore, the determination of estimates requires the exercise of judgment. Actual results inevitably will differ from those estimates, and such differences may be material to the financial statements. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements: Business Combinations We apply the acquisition method of accounting for business combinations. Under the acquisition method, the acquiring entity recognizes all of the identifiable assets acquired and liabilities assumed at their acquisition date fair values. We use our best estimates and assumptions to estimate the fair values of these tangible and intangible assets. Any excess of the purchase price over amounts allocated to the assets acquired is recorded as goodwill. The acquired intangible assets are amortized using the straight-line method over the estimated useful lives of the respective assets. Goodwill is reviewed for impairment on an annual basis, or more frequently if events or changes in circumstances indicate that the carrying amount of goodwill may be impaired. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable.