Annual Report for Fiscal Year Ending December 31, 2024 (Form 10-K)

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 our audited consolidated financial statements and the accompanying notes thereto included in "Item 8. Financial Statements and Supplementary Data." Except where expressly provided, all information relates to the Company prior to the Transactions (defined below).

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 this Annual Report on Form 10-K (the "Annual Report on Form 10-K").

Overview

Prior to the completion of the Transactions, we operated a network of consumer applications. Our product portfolio included Paltalk, Camfrog and Tinychat, which together hosted a large collection of video-based communities. Our other products included Vumber, which is a telecommunications services provider that enables users to communicate privately by having multiple phone numbers with any area code through which calls can be forwarded to a user's existing telephone number. As discussed below, following the Transactions, we continue to 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.

As of January 2, 2025, 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 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.

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.

Our ManyCam Software Product

Following the Transactions, we continue to 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 anticipate integrating ManyCam as an offering for our new customers and seek to optimize our cross-selling efforts of ManyCam with our other technology solutions.

As a result of the Transactions, 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 and our subsidiaries.

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") 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, to serve in such capacity until our 2025 annual meeting of stockholders (the "2025 Annual Meeting") and until his successor is duly elected and qualified or until his earlier death, disqualification, resignation or removal. 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 will serve in such capacity until the 2025 Annual Meeting and until his successor is duly elected and qualified or until his earlier death, disqualification, resignation or removal. Mr. Rabsatt was also appointed to serve on the Strategic Transactions Committee of the Board.

Patent Litigation

On July 23, 2021, Paltalk Holdings filed a patent infringement lawsuit (the "Lawsuit") against WebEx Communications, Inc., Cisco WebEx LLC, and Cisco Systems, Inc. (collectively, "Cisco"), in the U.S. District Court for the Western District of Texas (the "Court"). We alleged that certain of Cisco's products infringed U.S. Patent No. 6,683,858, and that we were entitled to damages.

On August 29, 2024, the jury awarded us $65.7 million (the "Award") in a jury verdict in connection with the Lawsuit. On October 8, 2024, an order granting a motion for final judgment (the "Final Judgment") was entered into in the Court in connection with the Lawsuit. The Final Judgment was entered in our favor in the amount of the Award and started the time for filing any post-trial motions or appeal.

The exact amount of the Award proceeds to be received by us will be determined based on a number of factors and will reflect the deduction of significant litigation-related expenses, including legal fees. Consequently, we estimate that we would receive no more than one third of the gross proceeds in connection with the Award, subject to post-trial proceedings (including any potential appellate proceedings by Cisco). We have not recorded any gain contingency in connection with the Award.

Pre-Transaction Operational Highlights

Operational highlights during the year ended December 31, 2024:

●

after over 18 months, we identified a business in a complimentary industry, signed definitive documents to acquire a business approximately three times our revenue size, divested from our video-based businesses and, subsequent to year end, closed on these transformative transactions;

●

revenue from continuing operations increased by 14.2% to approximately $1.1 million compared to $1.0 million for the year ended December 31, 2023, as sales from ManyCam increased;

●

net loss increased by 689.5% to $8.4 million for the year ended December 31, 2024, compared to net loss of $1.1 million for the year ended December 31, 2023, which increase included a one-time non-cash charge of $3.8 million of as a result of the impairment loss in connection with the Divestiture, as well as one time legal and accounting expenses of $1.8 million incurred in connection with the Acquisition;

●

net loss from continuing operations increased by 58.9% to a net loss of $4.3 million for the year ended December 31, 2024, compared to net loss of $2.7 million for the year ended December 31, 2023; and

●

compared to the prior year period, cash flows used in operations increased by $1.9 million to $3.0 million for the year ended December 31, 2024, as decreases in cost of revenue and marketing expense were offset by increased professional fees in connection with the Transactions.

2025 Business Objectives

For the near term, our business objectives following the Transactions 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.

Revenue Generation Following the Transactions

Following the Transactions, we now generate revenue from our five core areas as 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.

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

Following the Transactions, our revenue is measured based on the consideration specified in a contract with a customer. We contract 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.

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.

Revenue Generation Prior to the Transactions

Prior to the completion of the Transactions, our main sources of revenue were subscription revenue, which includes virtual gift revenue, and advertising revenue generated from users of our former core video chat products, Paltalk and Camfrog, most of which is presented as discontinued operations. Because we are no longer engaged in the business of providing access to video-based live streaming, virtual camera and telecommunications software to consumers following the Transactions, we will not generate subscription revenue or advertising revenue related to the Transferred Assets in the future. We also generated revenue from subscriptions for our ManyCam software product, which is presented as continuing operations.

Subscription Revenue

Our video chat platforms generated revenue primarily through subscription fees. Our tiers of subscriptions provided users with unlimited video windows and levels of status within the community. Multiple subscription tiers were offered in different durations depending on the product from one-, three-, six-, twelve-, and twenty-four-month terms. Longer-term plans (those with durations longer than one month) were generally available at discounted monthly rates. Levels of membership benefits were offered in tiers, with the least membership benefits in the lowest paid tier and the most membership benefits in the highest paid tier. Our membership tiers were "Plus," "Extreme," "VIP" and "Prime" for Paltalk and "Pro," "Extreme" and "Gold" for Camfrog. We also held occasional promotions that offer discounted subscriptions and virtual gifts. Subscriptions for ManyCam were generally offered in annual and two-year terms, with exceptions made for enterprise sales.

We recognized revenue from monthly premium subscription services beginning in the month in which the subscriptions are originated. Revenues from multi-month (or annual) subscriptions were recognized on a gross and straight-line basis over the length of the subscription period. The unearned portion of subscription revenue was presented as deferred revenue in the accompanying consolidated balance sheets.

We also offered virtual gifts to our users through our Paltalk, Camfrog and TinyChat applications. Users were able to purchase credits that could be redeemed for a host of virtual gifts such as a rose, a beer, or a car, among other items. Virtual gift revenue was recognized upon the users' utilization of the virtual gift and included in subscription revenue. The unearned portion of virtual gifts revenue is presented as deferred revenue in the accompanying consolidated balance sheets.

Advertising Revenue

We generated a portion of our revenue through advertisements on our video platforms. Advertising revenue was dependent upon the volume of advertising impressions viewed by active users as well as the advertising inventory we place on our products. We recognized advertising revenue as earned on a click-through, impression, registration or subscription basis. Measurements of impressions included when a user clicks on an advertisement (CPC basis), views an advertisement impression (CPM basis), or registers for an external website via an advertisement by clicking on or through our application (CPA basis).

Costs and Expenses

Cost of revenue

Cost of revenue consists primarily of compensation (including stock-based compensation) and other employee-related costs, which prior to the Transactions, consisted of costs for personnel engaged in data center and customer care functions, credit card processing fees, hosting fees, and data center rent and bandwidth costs. Prior to the Transactions, cost of revenue also included compensation and other employee-related costs for technical personnel, consultants and subcontracting costs relating to technology service revenue.

Sales and marketing expense

Prior to the Transactions, sales and marketing expense consisted primarily of advertising expenditures and compensation (including stock-based compensation) and other employee-related costs for personnel and consultants engaged in sales and sales support functions. Advertising and promotional spend included 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.

Product development expense

Prior to the Transactions, product development expense, which related to the development of technology of our applications, consisted primarily of compensation (including stock-based compensation) and other employee-related and consultant-related costs that are not capitalized for personnel engaged in the design, testing and enhancement of service offerings as well as amortization of capitalized website development costs.

General and administrative 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.

Key Metrics

Our management relies on certain non-GAAP and/or unaudited performance indicators to manage and evaluate our business. The key performance indicators set forth below helped 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.

		Year Ended December 31,
		2024				2023
Net cash used in operating activities		$	(3,019,287	)		$	(1,079,671	)
Net loss		$	(8,426,209	)		$	(1,067,335	)
Adjusted EBITDA		$	(4,431,852	)		$	(1,012,916	)
Adjusted EBITDA as percentage of total revenue			(48.8	)%			(9.2	)%

Adjusted EBITDA

Adjusted EBITDA is a non-GAAP financial measure, and includes results from continuing and discontinued operations. Adjusted EBITDA is defined as net (loss) income adjusted to exclude stock-based compensation expense, depreciation and amortization expenses, impairment loss in connection with the Divestiture, interest income, net, other (income) expense, net, and income tax (benefit) expense. The impairment loss in connection with the Divestiture relates to a one-time impairment charge recorded in connection with the Company's divestiture of the Transferred Assets.

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.

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: cash capital expenditures for assets underlying depreciation and amortization expense that may need to be replaced or for new capital expenditures; net loss from discontinued operations; interest income, net; other expense, net; income tax expense from continuing operations; our working capital requirements; the impairment loss on digital tokens; the potentially dilutive impact of stock-based compensation; and the provision for income taxes. 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 and our other GAAP results. The following table presents a reconciliation of net income, the most directly comparable financial measure calculated and presented in accordance with GAAP, to Adjusted EBITDA for each of the periods indicated. Adjusted EBITDA and net loss related to discontinued operations have not been segregated. Accordingly, the data below includes the results from continuing and discontinued operations:

		Year Ended
		December 31,
		2024				2023
Reconciliation of Net Loss to Adjusted EBITDA:
Net loss		$	(8,426,209	)		$	(1,067,335	)
Stock-based compensation expense			151,412				234,993
Depreciation and amortization expense			821,696				822,334
Impairment loss in connection with Divestiture			3,849,766				--
Interest income, net			(569,016	)			(639,611	)
Other income, net			(146,269	)			(343,045	)
Income tax benefit			(113,232	)			(20,252	)
Adjusted EBITDA		$	(4,431,852	)		$	(1,012,916	)

Results of Operations

Year Ended December 31, 2024 Compared to Year Ended December 31, 2023

Revenue

Revenue from continuing operations increased by 14.2% to approximately $1.1 million compared to $1.0 million for the year ended 2023, as sales from ManyCam increased.

The following table sets forth our subscription revenue for the years ended December 31, 2024 and 2023, the increase between those periods, the percentage increase between those periods, and the percentage of total revenue that subscription revenue represented for those periods:

		Years Ended								$				%				% of Revenue Years Ended
		December 31,								Increase				Increase				December 31,
		2024				2023												2024				2023
Subscription revenue		$	1,098,280			$	962,032			$	136,248				14.2	%			100	%			100	%

Subscription Revenue

Our subscription revenue for the year ended December 31, 2024 increased by $136,248, or 14.2%, as compared to the year ended December 31, 2023. The increase in subscription revenue was driven by increased revenue from ManyCam for the year ended December 31, 2024 compared to the year ended December 31, 2023.

Costs and Expenses

Total costs and expenses for the year ended December 31, 2024 increased by $1,560,186, or 33.5%, as compared to the year ended December 31, 2023. The following table presents our costs and expenses for the years ended December 31, 2024 and 2023, the increase or decrease between those periods, the percentage increase or decrease between those periods, and the percentage of total revenue that each represented for those periods:

		Years Ended								$				%				% of Revenue Years Ended
		December 31,								Increase				Increase				December 31,
		2024				2023				(Decrease)				(Decrease)				2024				2023
Cost of revenue		$	262,888			$	284,892			$	(22,004	)			(7.7	)%			23.9	%			29.6	%
Sales and marketing expense			61,706				91,939				(30,233	)			(32.9	)%			5.6	%			9.6	%
Product development expense			215,538				210,232				5,306				2.5	%			19.6	%			21.9	%
General and administrative expense			5,679,697				4,072,580				1,607,117				39.5	%			517.1	%			423.3	%
Total costs and expenses		$	6,219,829			$	4,659,643			$	1,560,186				33.5	%			566.3	%			484.4	%

Cost of revenue

Our cost of revenue for the year ended December 31, 2024 decreased by $22,004, or 7.7%, as compared to the year ended December 31, 2023. The decrease in cost of revenue for the year ended December 31, 2024, was primarily driven by a decrease in hosting expenses of $24,956 compared to the prior year ended December 31, 2023.

Sales and marketing expense

Our sales and marketing expense for the year ended December 31, 2024 decreased by $30,233, or 32.9%, as compared to the year ended December 31, 2023. The decrease in sales and marketing expense for the year ended December 31, 2024 was primarily due to a decrease of approximately $32,982 in marketing user acquisition expenses compared to the prior year.

Product development expense

Our product development expense for the year ended December 31, 2024 increased by $5,306, or 2.5%, as compared to the year ended December 31, 2023. The increase was primarily due to a increase of approximately $3,549 related to consulting/software expenses.

General and administrative expense

Our general and administrative expense for the year ended December 31, 2024 increased by $1,607,117, or 39.5%, as compared to the year ended December 31, 2023. The increase in general and administrative expense for the year ended December 31, 2023, was mainly due to an increase in professional expenses of $1,798,992, attributed to the Transactions, which closed subsequent to year end, on January 2, 2025. In addition, there was an increase of $54,456 in connection with bonus expense (primary retention bonuses to IPM employees). These increases were partially offset by a decrease of $34,121 related to insurance expense, a decrease of $25,041 related to bad debt expense and a decrease of $161,625 related to taxes compared to the year ended December 31, 2023.

Non-Operating Income

The following table presents the components of non-operating income for the years ended December 31, 2024 and 2023, the decrease between those periods, the percentage decrease between those periods, and the percentage of total revenue that each represented for those periods:

		Years Ended December 31,								$				%				% of Revenue Years Ended December 31,
		2024				2023				Decrease				Decrease				2024				2023
Interest income, net		$	569,016			$	639,611			$	(70,595	)			(11.0	)%			51.8	%			66.4	%
Other income, net			146,269				343,045				(196,776	)			(57.4	)%			13.3	%			35.7	%
Total non-operating income		$	715,285			$	982,656			$	(267,371	)			(27.2	)%			65.1	%			102.1	%

Non-operating income for the year ended December 31, 2024 was $715,285, a decrease of $267,371, or 27.2%, compared to non-operating income of $982,656 for the year ended December 31, 2023. The decrease in interest income was the result of interest earned in a high-yield bank account during 2023, and a lower cash balance and interest rate compared to the year ended December 31, 2024. Other income during 2023 was the result of recording the refundable employee retention tax credit received under the Coronavirus Aid, Relief, and Economic Security Act.

(Loss) Income from Discontinued Operations

Loss from discontinued operations for the year ended December 31, 2024 was $4,157,534, an increase of $5,777,207, or 356.7%, compared to income from discontinued operations of $1,619,673 for the year ended December 31, 2023. The increase in loss from discontinued operations was primarily the result of a decrease in subscription revenue and virtual gift revenue from the Paltalk and Camfrog applications included in discontinued operations of $2.0 million as well as a non-cash impairment loss in connection with Divestiture of $3.8 million.

Liquidity and Capital Resources

Currently, our primary source of liquidity is cash on hand and cash flows from continuing operations, and we believe that our cash and cash equivalents balance and our expected cash flow from operations will be sufficient to meet all of our financial obligations for the next 12 months. As of December 31, 2024, we had approximately $10.6 million of cash and cash equivalents.

Historically, our use of working capital was related to product development resources and an investment in marketing activities in order to maintain and create new services and features in applications for our users. In particular, a significant portion of our working capital had been allocated to the improvement of our products. During the year ended December 31, 2024, stock options representing the right to purchase 14,830 shares of our common stock were exercised for net proceeds to the Company of $39,772. During the year ended December 31, 2023, we purchased a total of 5,192 shares of common stock under the stock repurchase plan for an aggregate purchase price of $7,213, at an average share price of $1.39 per share. The stock repurchase plan expired on March 29, 2023 pursuant to its terms and has not been renewed. In the future, we may continue to seek to grow our business by expending our capital resources to fund strategic acquisitions, investments and partnership opportunities.

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.

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.

Cash Flow Analysis

The components of cash flows information related to discontinued operations have not been segregated in the table below. Accordingly, the net cash used in operating, investing and the cash provided by and used in financing activities include the results from continuing and discontinued operations:

		Years Ended
		December 31,
		2024				2023
Consolidated Statements of Cash Flows Data:
Net cash used in operating activities		$	(3,019,287	)		$	(1,079,671	)
Net cash used in investing activities			--				(85,000	)
Net cash provided by (used in) financing activities			39,772				(7,213	)
Net change in cash and cash equivalents		$	(2,979,515	)		$	(1,171,884	)

Operating Activities

Net cash used in operating activities was $3,019,287 for the year ended December 31, 2024, as compared to net cash used in operating activities of $1,079,671 for the year ended December 31, 2023. The increase in cash used in operating activities during the year ended December 31, 2024 was primarily the result of an increase in net loss, which was attributed to increases in professional fees as a result of the Transactions.

Investing Activities

Net cash used in investing activities was $85,000 for the year ended December 31, 2023 compared to no cash used in investing activities for the year ended December 31, 2024. Net cash used in investing activities for the year ended December 31, 2023 was related to payment of contingent consideration in connection with our acquisition of ManyCam in 2022.

Financing Activities

Net cash provided by financing activities was $39,772 for the year ended December 31, 2024, compared to net cash used in financing activities of $7,213 for the year ended December 31, 2023. During the year ended December 31, 2024, stock options representing the right of purchase 14,830 shares of common stock were exercised for net proceeds to the Company of $39,772. These stock options had an average exercise price of $2.68 per share and a weighted average share price of $4.12 per share on the date of exercise.

Contractual Obligations and Commitments

As of December 31, 2024, there were no material changes to our contractual obligations and commitments. Following fiscal year end, we completed the Acquisition as described above. In connection with the Acquisition, Newtek is entitled to receive an amount up to $5,000,000 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, in shares of Series A Preferred Stock or in a combination thereof.

Off-Balance Sheet Arrangements

As of December 31, 2024, 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.

During the year ended December 31, 2024, the most significant accounting estimate inherent in the preparation of our financial statements was the evaluation of goodwill for impairment.

Goodwill is recorded when the purchase price paid for an acquisition exceeds the estimated fair value of the net identified tangible and intangible assets acquired. We evaluate our goodwill for impairment in accordance with Accounting Standards and Codifications ("ASC") 350, Intangibles - Goodwill and Other (as amended by Accounting Standards Update 2017-04), by assessing qualitative factors to determine whether it is more likely than not (that is, a likelihood of more than 50 percent) that the fair value of a reporting unit is less than its carrying amount, including goodwill. We perform the quantitative goodwill impairment test, if, after assessing the totality of events or circumstances such as those described in paragraph ASC 350-20-35-3C(a) through (g), we determine that it was more likely than not that the fair value of a reporting unit is less than its carrying amount. An impairment charge is recognized for the amount by which the carrying amount exceeded the reporting unit's fair value, limited to the total amount of goodwill related to the reporting unit.