Newsmax Inc. 10-Q

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following “Management’s Discussion and Analysis of Financial Condition and Results of Operations” should be read in conjunction with the audited consolidated financial statements as of and for the quarter ended March 31, 2025 and the year ended December 31, 2024 , and other information included elsewhere in this Quarterly Report. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from such forward-looking statements. Factors that could cause or contribute to those differences include, but are not limited to, those identified below and those discussed in the sections entitled “Risk Factors” and “Cautionary Statement Regarding Forward-Looking Statements” included elsewhere in this Quarterly Report and our Annual Report on Form 10-K for the fiscal year ended December 31, 2024 as may be amended, supplemented or superseded from time to time by other reports we file with the SEC. Additionally, our historical results are not necessarily indicative of the results that may be expected in any future period. Overview of the Company’s Business Founded in 1998 as a digital media brand, Newsmax Inc. entered the cable news market in 2014. Since then, the network has had an astonishing rise, climbing into the top tier of cable channels, and has remained the fourth highest-rated cable news channel in the United States, just behind CNN. According to Nielsen, Newsmax Inc. was the only cable news channel to see ratings growth across all day parts in 2025, with prime-time up 42% in total viewers. Q1 2024 also saw an impressive 137% rise in prime-time ratings, compared to the same period last year. The Company has developed a significant audience, reaching over 40 million Americans each month through its television broadcasts and multi-platform content, and has demonstrated remarkable growth with revenues up 332% since 2021. In June 2024, a Reuters global survey of media found Newsmax Inc. was one of the nation’s “top news brands,” identifying the network as one of only 12 major media outlets Americans are turning to regularly. Newsmax Inc. is a holding company that owns 100% of the equity interests of its operating company Newsmax Media and the other Subsidiaries operate the businesses described in this Quarterly Report, and none of those businesses are operated by Newsmax Inc. Newsmax Inc. is a television broadcaster and multi-platform content publisher that produces original news and editorial content for consumers through various media outlets, including through its TV news channels, digital and print publications, its popular website Newsmax.com and affiliated sites, its syndicated radio show and podcasts and other platforms in order to sell advertising to third-party marketers as well as offering paid subscriptions to more than a dozen digital and print products sold by Newsmax Media. Newsmax Media content is carried by all major linear cable and satellite pay TV platforms, or multichannel video programming distributors (“MVPDs”) for the Newsmax and World at War channels, and most over the top (“OTT”) streaming platforms for its free ad-supported streaming television service (“FAST”) channel Newsmax2, making Newsmax Media content available to over 100 million homes in the U.S. In addition, international companies have licensed Newsmax Media’s channels and brand for regional, national and local television and digital media purposes. Certain licensing agreements currently in place have allowed Newsmax Media’s partners to provide cable television and digital news under the Newsmax Media brand to viewers in several European countries, including Republic of Serbia, Republic of Croatia, Bosnia and Herzegovina, Montenegro, North Macedonia, Slovenia and Albania. Newsmax Inc. operates several business lines through its subsidiaries and divisions, creating a synergistic effect on audience growth, revenues and customer acquisition. These business lines are grouped into 2 separate reportable segments which consist of Broadcasting and Digital: • Broadcasting - The broadcast segment of the Company’s business produces and licenses news, business news and lifestyle content for distribution primarily through MVPDs including cable television systems, direct broadcast satellite operators and telecommunication companies, primarily in the United States, generating revenue through (1) placement of advertisements on our broadcast content, (2) subscriptions to our broadcast content, and (3) affiliate fees from the MVPDs. The components of Broadcasting are as follows: 27 • Newsmax Broadcasting LLC provides programming through three channels, Newsmax, Newsmax2, and World at War. Newsmax and World at War are linear cable channels available on pay TV services, and Newsmax2, is a free streaming channel. Both Newsmax and Newsmax2 offer 24/7 television news and informational programming channels which are distributed through both cable and digital streaming platforms. World at War offers 24/7 historical documentaries and movies that have a primary focus on the wars of the past 150 years and the people who fought them. • Newsmax Radio LLC provides programming through a syndicated radio show as well as widely-available podcasts. These podcasts include “The Newsmax Daily with Tony Marino,” a talk show with radio personality Gerry Callahan and “Greg Kelly Reports” with its TV host Greg Kelly. • Digital - The digital segment generates revenues through (1) online advertising, including online display, email advertising, other online placements and print advertisements, (2) subscriptions, including our collection of specialized health and financial newsletters, Newsmax Magazine and four online membership programs, and (3) e-commerce, primarily through our subsidiaries that sell nutraceuticals and nonfiction books on political, financial and health-related topics. The components of Digital are as follows: • Humanix Publishing LLC is a print and e-book publishing house that publishes books in the areas of politics, health, personal finance, history, religion and current affairs. Under Newsmax ownership, Humanix Publishing has published approximately 100 titles, including a New York Times bestseller. The Company uses published books as free premiums when offering subscriptions to their publications, including Newsmax Magazine and their health and financial newsletters. • Medix Health, LLC offers and sells 21 nutraceutical products. Medix Health’s products are aimed at Newsmax Media’s core demographic of consumers and cross-sold through Newsmax Media’s health newsletters. These supplements have been certified as compliant with current Good Manufacturing Practices by The Natural Products Association and are typically formulated by medical doctors who also write and edit Newsmax Media’s health newsletters. Newsmax Media retains all intellectual property rights to the supplement formulations created for Medix Health. The natural supplements seek to help customers alleviate pain, reduce blood glucose, prevent heart disease, improve energy and mental acuity, and, in general, improve overall wellness. All Medix Health supplements are manufactured at third-party manufacturing facilities that are FDA registered and meet current Good Manufacturing Practices standards. All Medix Health supplements are offered online and are usually purchased as part of a recurring subscription program. • Newsmax Digital Advertising handles advertising and marketing offers and sales to third party companies and agencies associated with our digital segment. Newsmax Digital Advertising sells placements for display and native website ads, email sponsorships in Newsmax News Alerts, sponsorships for SMS/text and push notification, print ads for our magazine, inserts for our newsletters, and podcast offerings. • Newsmax Publications publishes and manages Newsmax Media’s paid subscription business. This subsidiary currently publishes Newsmax Magazine, five health newsletters including Health Radar, Dr. Crandall’s Heart & Health; The Blaylock Wellness Report; financial newsletters including The Dividend Machine, High Income Factor and Financial Intelligence Report, and Newsmax Platinum, our online publication. This subsidiary has over 300,000 subscribers to its paid publications. • ROI Media Strategies LLC provides media buying and strategy services to third party companies and agencies, helping small companies to market their offerings across all channels of marketing, including email, broadcast, podcasts, digital, and print. • Crown Atlantic Insurance LLC is an insurance agency licensed in 50 states of the U.S. and the District of Columbia with an emphasis on life insurance and retirement solutions. Newsmax Media’s subsidiaries use Crown Atlantic Insurance LLC for the purposes of marketing annuities, life insurance and other insurance offerings across their platforms. 28 Growth Strategies and Outlook Maintain and enhance leading position in news and other content production. Newsmax Media has been a leader in digital news and with the continued growth of its television service, plans to continue to invest in talent acquisition and programming that we expect to raise the profile and visibility of Newsmax Media to a broader audience. With expanded content offerings, Newsmax Media plans to expand its reach and value to audiences through traditional platform and direct-to-consumer services. Increase revenue growth through the continued delivery of premium content. Newsmax Media will continue to focus on creating high-quality content delivered through diversified publishing platforms that offers value to its audience, advertisers and distribution partners. As a live linear content service, Newsmax Media seeks to offer a unique perspective and voice that resonates with audiences across those platforms and further develop a dedicated and loyal audience. Expand television and digital distribution offerings, increasing complementary sources of revenues. • Newsmax Media’s key goals are to maximize its subscriber penetration on traditional cable platforms, growing its subscription base for Newsmax+, increasing audiences for its news channels, develop its footprint in international markets - all while creating additional revenue opportunities through advertising sales. Newsmax Media will also further develop its delivery strategies on emerging content and social platforms to increase interaction with its audience. • Newsmax, as a relatively new network, has potential for additional distribution growth, and growth of its advertising revenue as well as affiliate fees , which is a revenue stream that started in 2023 where previously the Company paid for distribution. Linear TV is primarily driven by live sports, news and events, and as media companies continue to focus on expanding their streaming service offerings, news consumption has risen in importance. Trends and Other Factors Impacting Our Performance The Company’s broadcast segment derives the majority of its revenues from advertising. For the three months ended March 31, 2025, the Company generated revenues of approximately $45.3 million, of which 63.8% was generated from advertising in the broadcast and digital segments, 16.4% was generated from affiliate fee revenue, 15.4% was generated from subscriptions for publications including Newsmax+ and 4.4% was generated from other lines of business which are primarily e-commerce sales of nutraceuticals, books and licensing fees. For the three months ended March 31, 2024, the Company generated revenues of $40.6 million, of which approximately 62.7% was generated from advertising in the broadcast and digital segments, approximately 15.6% was generated from subscriptions for publications including Newsmax+, approximately 5.4% was generated from other lines of business which are primarily e-commerce sales of nutraceuticals, books and licensing fee and approximately 16.3% was generated from affiliate fees. Affiliate fees are a new revenue stream that started in November 2023 that primarily include (i) monthly subscriber-based license and retransmission consent fees paid by programming distributors that carry the Newsmax channel. The Company’s revenues are impacted by rate changes, changes in the number of subscribers to MVPD’s and changes in the expenditures by advertisers. The cable network programming and television industries continue to evolve rapidly, with changes in technology leading to alternative methods for the delivery and storage of digital content. These technological advancements have driven changes in consumer behavior as consumers now have more control over when, where and how they consume content. Consumer preferences have evolved toward lower cost alternatives, including direct-to-consumer offerings. These changes in technologies and consumer behavior have contributed to declines in the number of subscribers to MVPD services, and these declines are expected to continue and possibly accelerate in the future. At the same time, technological changes have increased advertisers’ options for reaching their target audiences. There has been a substantial increase in the availability of content with reduced advertising or without advertising at all. As consumers switch to digital consumption of video content, there is still to be developed a consistent, broadly accepted measure of multiplatform audiences across the industry. Furthermore, the pricing and volume of advertising may be 29 affected by shifts in spending from more traditional media and toward digital and mobile offerings, which can deliver targeted advertising more promptly, or toward newer ways of purchasing advertising. The Company operates in a highly competitive industry and its performance is dependent, to a large extent, on the impact of changes in consumer behavior as a result of new technologies, the sale of advertising, the maintenance, renewal and terms of its carriage, affiliation and content agreements and programming rights, the popularity of its content, general economic conditions (including financial market conditions), the Company’s ability to manage its businesses effectively, and its relative strength and leverage in the industry. For more information, see “Risk Factors.” Components of our Results of Operations Revenue Recognition In accordance with Accounting Standards Codification (“ASC”) 606, “Revenue from Contracts with Customers,” the Company recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration the Company expects to be entitled in exchange for those goods are services. Advertising Revenue Advertising revenue is derived from the sale of advertising on the Company’s cable television, email database, in the Company’s magazine and related publications, or on the Company’s website. Revenue related to the sale of advertising in the broadcast segment is recognized at the time of broadcast. Revenue related to the Company's digital segment is recognized when display or other digital advertisements record impressions on the various digital media. Revenue related to the Company's magazine and related publications is recognized when the ad is displayed in the printed document. Each advertisement insertion order is determined to be a distinct performance obligation that is satisfied at the point in time when such advertisements are published/aired. The Company records revenue from contracts that are entered into between the Company and its customers, primarily advertising agencies and direct advertisers, at the amount charged for the services. Advertising contracts, which are generally short-term, are billed monthly for the services provided during the month, with payments due shortly thereafter. Cash payments received prior to services rendered result in deferred revenue, which is then recognized as revenue when the advertising time or space is actually provided. The Company enters into agreements with over-the-top distribution platforms to distribute the Company’s news channel. Pursuant to the Company’s distribution agreements, advertising revenues are earned based on an allocation of the fee determined by the number of impressions received. These contracts represent a single performance obligation recognized over time under the series guidance. Revenue is recognized upon delivery of the content over the course of an over-the-top distribution agreement term based on time elapsed, as this best depicts the simultaneous consumption and delivery of the services. The Company bills OTT customers monthly over the life of the contract. The Company has an unconditional right to receive payment of the amount billed generally within 30 to 90 days from the invoice date. The invoiced amount to be received is recorded in accounts receivable on the balance sheets. Affiliate Fee Revenue The Company generates affiliate fee revenue from agreements with MVPDs for cable network. Affiliate fee revenue is recognized as we continuously make the programming available to the customer over the term of the agreement. For contracts with affiliate fees based on the number of the affiliate’s subscribers, revenues are recognized based on the contractual rate multiplied by the estimated number of subscribers each period. Affiliate contracts are generally multi-year contracts billed monthly with payments due shortly thereafter. Subscription Revenue The Company sells magazines to consumers through subscriptions. Each subscription is determined to be a distinct performance obligation that is satisfied over the term of the subscription, normally one (1) to five (5) years. Payments for subscriptions received in advance of the publication are recorded as deferred revenue and recognized as income over the term, as this best represents the transfer of control of the services to the consumer. The Company records taxes collected from customers and remitted to governmental authorities on a net basis. In 2025, the Company launched Newsmax+ which is a subscription service that provides the Company’s broadcast content directly to consumers either on a monthly or annual basis. Monthly subscriptions are recognized as income in the month it was earned. Annual subscriptions are recorded as deferred revenue and recognized as income over the term of the contract each month. 30 Product Sales Product sales are derived from the sales of books, audio and video, dietary supplements, television production and distribution, and other items advertised on the Company’s website. Supplement, books, media and other product sales are recognized at the point in time control transfers to the customer, which is when the product is shipped. Allowances are considered for estimated returns and refunds at the point in time when revenue is recognized. The Company records taxes collected from customers and remitted to governmental authorities on a net basis. As a practical expedient, the Company recognizes any incremental costs of obtaining contracts as expense as the amortization period is considered to be a year or less. As a practical expedient, the Company accounts for shipping and handling activities related to contracts with customers as costs to fulfill the promise to transfer the associated products. Shipping and Handling Cost Amounts billed to third-party customers for shipping and handling are included as a component of revenue. Shipping and handling costs incurred are included as a component of cost of products sold. Accounts Receivable and Allowance for Credit Losses The Company performs ongoing credit evaluations of its customers and maintains allowances for potential credit losses and doubtful accounts. The Company’s allowance for credit losses consists of losses expected based on known credit issues with specific customers as well as a general expected credit loss allowance based on relevant information, including historical loss rates, current conditions, and reasonable economic forecasts that affect collectability. Results of Operations Three months ended March 31, 2025, versus March 31, 2024 The results of operations presented below should be reviewed in conjunction with the condensed consolidated financial statements and notes included elsewhere in this Quarterly Report. The following table sets forth our results of operations data for the three months ended March 31, 2025, as compared to the three months ended March 31, 2024: Three Months Ended March 31, 2025 2024 $ Change % Change Revenues Service Revenues Advertising $ 28,887,194 $ 25,452,346 $ 3,434,848 13.5 Subscription 6,982,160 6,335,112 647,048 10.2 Affiliate fee 7,428,423 6,600,636 827,787 12.5 Other 437,563 775,283 (337,720) (43.6) Product Sales 1,566,367 1,436,268 130,099 9.1 Total revenues $ 45,301,707 $ 40,599,645 $ 4,702,061 11.6 Cost of revenues 23,634,628 20,304,017 3,330,611 16.4 Gross profit $ 21,667,079 $ 20,295,628 1,371,450 6.8 General & administrative 33,239,859 71,138,971 (37,899,112) (53.3) Other (expense) income, net (5,654,745) 161,628 (5,816,373) (3598.6) Loss before income tax expense $ (17,227,525) $ (50,681,715) $ 33,454,190 66.0 Income tax expense 5,000 1,972 3,028 (153.5) Net loss $ (17,232,525) $ (50,683,687) $ 33,451,162 66.0 31 Revenues Revenues increased by approximately $4.7 million, or 11.6%, for the three months ended March 31, 2025, compared to the three months ended March 31, 2024. Affiliate fee revenues increased by approximately $0.8 million due to new contractual relationships as well as rate increases which took effect in 2025. Subscription revenue increased by approximately $0.6 million due to an increase in subscribers of the Newsmax+ streaming service but was offset by reductions in publication subscriptions due to decreased new customer acquisition. Product Sales increased by approximately $0.1 million due to sales of the new book releases " Pay Zero Taxes ", " Turnaround " and " Plan Red " but was offset slightly by lower nutraceutical sales as a result of decreased new customer acquisition. Advertising revenue increased by approximately $3.4 million due to higher linear cable and satellite advertising revenue due to higher Nielsen ratings which translated to higher rates but was offset by reductions in digital advertising revenue due to 2024 being an election year. Cost of Revenues Cost of revenues increased by approximately $3.3 million, or 16.4%, for the three months ended March 31, 2025 compared to the three months ended March 31, 2024. The increase was due to increased headcount, programming and production costs on our main Newsmax TV channel as well as continued investment into Newsmax 2 for OTT to build out the programming to better monetize Newsmax 2 on FAST channels. These increases were offset by reductions in credit card fees, distribution and carriage expense, subscription fulfillment product obsolesce and call center costs. Gross Profit Gross profit increased by approximately $1.4 million, or 6.8%, for the three months ended March 31, 2025 compared to the three months ended March 31, 2024. Gross profit as a percent of revenues decreased to 47.8% for the three months ended March 31, 2025 from 50.0% for the three months ended March 31, 2024. Gross profit increased mainly due to an increase in revenue around advertising, affiliate fees and Newsmax+. General and Administrative Expense General and administrative expense decreased by approximately $(37.9) million or (53.3)%, for the three months ended March 31, 2025 compared to the three months ended March 31, 2024. The decrease was primarily driven by a decrease in other corporate matters by approximately $37.2 million due to Smartmatic settlement expenses incurred in the three months ended March 31, 2024 offset by increases in personnel costs of approximately $2.1 million, stock compensation costs of approximately $1.6 million, consulting and legal fees associated with becoming a public company of approximately $1.3 million, and events related to the inauguration of President Donald J. Trump on January 20, 2025 of approximately $1.2 million. Other (Expense) Income, Net Other (expense) income net increased by approximately $5.8 million, or 3,598.6%, for the three months ended March 31, 2025 compared to the three months ended March 31, 2024. The increase was primarily driven by non-cash mark to market adjustments for the derivative and warrant liabilities offset by increases in interest and dividend income as well as an increase in unrealized gains. Segment Analysis The following tables set forth the Company’s Revenues and Segment EBITDA for the three months ended March 31, 2025, as compared to the three months ended March 31, 2024: 2025 2024 $ Change % Change Revenues Broadcasting $ 36,187,178 $ 30,110,903 $ 6,076,275 20.2 Digital 9,114,529 10,488,742 (1,374,213) (13.1) Total revenues $ 45,301,707 $ 40,599,645 $ 4,702,061 11.6 32 2025 2024 $ Change % Change Segment Adjusted EBITDA Broadcasting $ 2,151,242 $ 3,773,335 $ (1,622,093) (43.0) Digital (3,319,544) (575,510) (2,744,034) 476.8 Adjusted EBITDA 1 $ (1,168,302) $ 3,197,825 $ (4,366,126) (136.5) Broadcasting 2025 2024 $ Change % Change Revenues Advertising $ 24,631,579 $ 20,303,395 $ 4,328,184 21.3 Subscription 3,689,676 2,431,872 1,257,804 52 Affiliate fee 7,428,423 6,600,636 827,787 12.5 Other 437,500 775,000 (337,500) (43.5) Total revenues $ 36,187,178 $ 30,110,903 $ 6,076,275 20.2 Cost of revenues 18,643,765 15,340,809 3,302,956 21.5 Gross profit $ 17,543,413 $ 14,770,094 2,773,319 18.8 General & administrative 15,392,171 10,996,759 4,395,412 40.0 Segment Adjusted EBITDA 2 $ 2,151,242 $ 3,773,335 $ (1,622,093) (43.0) Broadcast Revenues increased by $6.1 million for the three months ended March 31, 2025, as compared to the three months ended March 31, 2024, due to an increase in affiliate fee revenue of approximately $0.8 million, which is attributed to new contractual relationships starting later in 2024 as well as rate increases for 2025, advertising revenue of approximately $4.3 million due to higher ratings and pricing, subscription revenue of approximately $1.3 million from Newsmax+ due to an increase in subscribers offset by a decrease in licensing revenue of approximately $(0.3) million. Broadcast Segment Adjusted EBITDA decreased for the three months ended March 31, 2025, as compared to the three months ended March 31, 2024, primarily due to increases in cost of revenues and G&A expense related to increased headcount, programming and production costs on our main Newsmax TV channel as well as continued investment into Newsmax 2 for OTT to build out the programming to better monetize Newsmax 2 on FAST channels. Additional increases consisted of marketing for TV, audit, consulting and legal fees associated with becoming a public company and costs associated with coverage of President Donald J. Trump on January 20, 2025. These expense increases were offset by reductions in distribution and carriage costs, fulfillment costs and bank fees.. Digital 2025 2024 $ Change % Change Revenues Advertising $ 4,255,615 $ 5,148,951 $ (893,336) (17.3) Subscription 3,292,484 3,903,240 (610,756) (15.6) Product sales 1,566,367 1,436,268 130,099 9.1 Other 63 283 (220) (77.7) Total revenues $ 9,114,529 $ 10,488,742 $ (1,374,213) (13.1) Cost of revenues 4,990,863 4,963,208 27,655 0.6 Gross profit $ 4,123,666 $ 5,525,534 (1,401,868) (25.4) 1 For a discussion of Adjusted EBITDA, see "Non-GAAP Financial Measures" below. 2 For a discussion of Adjusted EBITDA, see "Non-GAAP Financial Measures" below. 33 General & administrative 7,443,210 6,101,044 1,342,166 22.0 Segment Adjusted EBITDA 3 $ (3,319,544) $ (575,510) $ (2,744,034) (476.8) Digital Revenues decreased by $1.4 million for the three months ended March 31, 2025, as compared to the three months ended March 31, 2024, due to decreases in advertising revenue due to 2024 being an election year which drives digital advertising revenue as well as subscription revenue as a result of decreased marketing for new customer acquisitions. Digital Segment Adjusted EBITDA decreased for the three months ended March 31, 2025, as compared to three months ended March 31, 2024, due to increased headcount, consulting and legal fees associated with becoming a public company as well as stock compensation expense for the stock options issued in March 2025. Three months ended March 31, 2025 versus three months ended March 31, 2024 The following table reconciles Net loss to Adjusted EBITDA for the three months ended March 31, 2025, as compared to the three months ended March 31, 2024: 2025 2024 Net loss $ (17,232,525) $ (50,683,687) Add Depreciation 736,875 805,049 Interest, net (1,048,231) (1,508) Unrealized (gain) loss on marketable securities (1,585,580) (163,346) Other corporate matters 9,667,603 53,236,120 Other, net 4 8,288,556 3,225 Income tax expense 5,000 1,972 Adjusted EBITDA 5 $ (1,168,302) $ 3,197,825 Liquidity and Capital Resources The Company had approximately $126.7 million of cash and cash equivalents and $89.8 million in investments as of March 31, 2025. The Company’s primary sources of liquidity include cash on hand and available-for-sale investments. On September 26, 2024, the Company entered into a settlement agreement with Smartmatic pursuant to which the parties agreed to resolve the lawsuits among them. The Company agreed to pay a settlement of approximately $40 million payable over time and granted a five year warrant to purchase 2,000 of Series B preferred stock at an exercise price of $5,000 per share. Following the conversion of the underlying Series B preferred stock into Class B common stock in connection with the Company's March 28, 2025 initial public offering, Smartmatic has a five year warrant to purchase 1,333,333 shares of Class B common stock at an exercise price of $7.50 per share. Refer to Note 12. Legal for details of the settlement. As of the date hereof, the Company has made payments under the settlement agreement totaling $30 million. Payment of the remaining balance of $10 million will be made on June 30,2025 . This payment will be made from the Company’s existing cash on hand. The principal uses of cash that affect the Company's liquidity position include the following: operational expenditures including production cost, marketing and promotional expenses, expenses related to broadcasting the Company's programming, employee and facility costs, capital expenditures, income taxes, interest payments and legal fees and settlements. The Company completed the Private Placement on February 27, 2025, having sold 45,000 shares of its Series B Preferred Stock, resulting in net proceeds to the Company of approximately $206.7 million. The Company believes these sources of liquidity are sufficient to meet its business operating requirements and its capital expenditures for the next 12 months. 3 For a discussion of Adjusted EBITDA, see "Non-GAAP Financial Measures" below. 4 Comprised of miscellaneous items such as derivative adjustments, income tax credits, and unrealized gains on securities 5 For a discussion of Adjusted EBITDA, see “Non-GAAP Financial Measures” below. 34 Convertible Preferred Stock Convertible Preferred Stock as of March 31, 2025 and December 31, 2024 (0 and 41,034 total shares authorized, respectively, and all classes are $0.001 par value per share) is as follows: Issued and Outstanding as of Class March 31, 2025 December 31, 2024 Series A $ — 611 Series A (with redemption rights) $ — 35 Series A-1 $ — 1,222 Series A-2 $ — 2,647 Series A-3 $ — 1,060 Series B $ — 27,612 $ — 33,187 Cash and Cash Equivalents As of March 31, 2025, cash and cash equivalents balance was approximately $126.7 million. Cash and cash equivalents consist of interest-bearing deposit accounts and money market accounts managed by third-party financial institutions, and highly liquid investments with maturities of three months or less. The existing cash and cash equivalents, along with projected cash flows, are sufficient to fund our liquidity needs for the next 12 months. At this time, we do not anticipate the need to raise additional capital. The following table shows our cash flows from operating activities, investing activities and financing activities for the stated periods: March 31 2025 2024 Net cash provided by (used in): Operating activities $ (15,725,959) $ (3,307,824) Investing activities (29,495,914) 228,919 Financing activities 147,887,679 (17,486) Operating Activities Net cash used in operating activities for the three months ended March 31, 2025 was $15.7 million and was primarily due to a net loss and offset by an increase in accrued expenses. Net cash used in operating activities for the three months ended March 31, 2024 was $3.3 million and was primarily due to a decrease in accounts payable. Investing Activities Net cash used in investing activities for the three months ended March 31, 2025 was $29.5 million primarily due to an increase in the purchase of investments. Net cash provided by investing activities for the three months ended March 31, 2024 was $0.23 million primarily due to an increase in the sale of investments offset by purchases of fixed assets. Financing Activities Net cash provided by financing activities for the three months ended March 31, 2025 was $147.9 million primarily due to a proceeds received from issuances of convertible stock and common stock in the initial public offering. 35 Net cash used in financing activities for the three months ended March 31, 2024 was $0.02 million primarily due to principal payments under finance lease obligations. Non-GAAP Financial Measures Adjusted EBITDA is defined as revenues less cost of revenues and general and administrative expenses and does not include depreciation and amortization, interest expense, net, impairment charges, unrealized gains (losses) on marketable securities, other corporate matters (consisting primarily of certain litigation expenses, and related fees, for specific legal proceedings that the Company has determined are infrequent and unusual in terms of their magnitude), other, net, and income tax expense. Management believes that information about Adjusted EBITDA assists all users of the Company’s financial statements by allowing them to evaluate changes in the operating results of the Company’s portfolio of businesses separate from non-operational factors that affect net income, thus providing insight into both operations and the other factors that affect reported results. Adjusted EBITDA provides management, investors and equity analysts a measure to analyze the operating performance of the Company’s business and its enterprise value against historical data and competitors’ data, although historical results, including Adjusted EBITDA, may not be indicative of future results (as operating performance is highly contingent on many factors, including customer tastes and preferences). Adjusted EBITDA is considered a non-GAAP financial measure and should be considered in addition to, not as a substitute for, net income, cash flow and other measures of financial performance reported in accordance with U.S. generally accepted accounting principles (“GAAP”). In addition, this measure does not reflect cash available to fund requirements and excludes items, such as depreciation and amortization and impairment charges, which are significant components in assessing the Company’s financial performance. Adjusted EBITDA may not be comparable to similarly titled measures reported by other companies. Off-Balance Sheet Arrangements As of March 31, 2025, we did not have any off-balance sheet arrangements. Critical Accounting Estimates There have been no material changes in our critical accounting policies and estimates from those disclosed in Part II; Item 7: “Management’s Discussion and Analysis of Financial Condition and Results of Operations; Critical Accounting Policies” contained in our Annual Report on Form 10-K for the year ended December 31, 2024. JOBS Act Accounting Election Section 102(b)(1) of the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”) exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a registration statement declared effective under the Securities Act of 1933, as amended, or do not have a class of securities registered under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”)) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that an emerging growth company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such an election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of the Company’s financial statements with another public company that is neither an emerging growth company nor an emerging growth company that has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used. 36 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information otherwise required under this Item.