IPM 10-K & 10-Q changes, risk factors and insider trading
Intelligent Protection Management Corp. · Nasdaq · Services-Computer Programming, Data Processing, Etc. · CIK 1355839 · All filings on SEC.gov
At a glance
What changed in the latest 10-K
Risk Factors
Removed heading “We may not be able to effectively integrate the businesses of NTS or realize the anticipated benefits and synergies expected from the Acquisition.”
Removed heading “Through the Acquisition, we are entering a new line of business which is highly competitive.”
Removed heading “Newtek previously identified material weaknesses in NTS’s internal controls over financial reporting. If the material weaknesses are not remediated, it may adversely affect our ability to report our financial condition and results of operations in a timely and accurate manner or lower investor confidence in our Company and, as a result, negatively affect the value of our common stock.”
Removed heading “We may record goodwill and other intangible assets that could become impaired and result in material non-cash charges to our results of operations in the future.”
Removed heading “Newtek historically accounted for a material portion of NTS’s revenue and income.”
Largest changes
“Newtek previously identified material weaknesses in NTS’s internal controls over financial reporting. If the material weaknesses are not remediated, it may adversely affect our ability to report our financial condition and results of operations in a timely and accurate manner or lower investor confidence in our Company and, as a result, negatively affect the value of our common stock.”see in full comparison
“As disclosed in Newtek’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023, filed with the SEC on April 1, 2024, Newtek’s management concluded that NTS did not maintain effective internal controls over financial reporting as of December 31, 2023, as a result of the material weaknesses related to deficiencies in the conversion of NTS’s system of record for webhosting revenue and ineffective control design and implementation over revenue recognition. …”see in full comparison
“We may record goodwill and other intangible assets that could become impaired and result in material non-cash charges to our results of operations in the future.”see in full comparison
“Under the acquisition method of accounting, the total purchase price is allocated to NTS’s tangible assets and liabilities and identifiable intangible assets based on their fair values as of the Closing Date. The excess of the purchase price over those fair values is recorded as goodwill. We expect that the Acquisition may result in the creation of goodwill based upon the application of the acquisition method of accounting. To the extent goodwill or intangibles are recorded and the values become impaired, we may be required to recognize material non-cash charges relating to such impairment. …”see in full comparison
Furthermore, we maintain a work-from-home policy for our employees. Remote work and remote access increase our vulnerability to cybersecurity attacks. We may see an increase in cyberattack volume, frequency and sophistication driven by the global enablement of remote workforces. We seek to detect and investigate unauthorized attempts and attacks against our network, products and services and to prevent their recurrence where practicable through changes to our internal processes and tools and changes or updates to our products and services; however, we remain potentially vulnerable to additional known or unknown threats. In some instances, we and our customers can be unaware of an incident or its magnitude and effects. Additionally, the rapid evolution and increasing prevalence of AI technologiessee in full comparisonmayhasalso increaseincreased our cybersecurity risks. Moreover, globally there has beenbeenan increase in cybersecurityattacksattacks,sinceparticularlyRussiaasinvadedaUkraine.result of international conflicts. The risk of state-supported and geopolitical-related cyber-attackscyber-attacksmay increase in connection with thewarwar, including the conflicts inUkraineUkraine, Iran and the Middle East, and any related political or economic responses and counter-responses. We may not discover all such incidents or activity or be able to respond or otherwise address them promptly, in sufficient respects or at all.
“We may not be able to effectively integrate the businesses of NTS or realize the anticipated benefits and synergies expected from the Acquisition.”see in full comparison
Full comparison: every changed paragraph (32)
Furthermore, we maintain a work-from-home policy
for our employees. Remote work and remote access increase our vulnerability to cybersecurity attacks. We may see an increase in cyberattack
volume, frequency and sophistication driven by the global enablement of remote workforces. We seek to detect and investigate unauthorized
attempts and attacks against our network, products and services and to prevent their recurrence where practicable through changes to our
internal processes and tools and changes or updates to our products and services; however, we remain potentially vulnerable to additional
known or unknown threats. In some instances, we and our customers can be unaware of an incident or its magnitude and effects. Additionally,
the rapid evolution and increasing prevalence of AI technologies mayhas also increaseincreased our cybersecurity risks. Moreover, globally there has been
been an increase in cybersecurity attacksattacks, sinceparticularly Russiaas invadeda Ukraine.result of international conflicts. The risk of state-supported and geopolitical-related
cyber-attacks cyber-attacks
may increase in connection with the warwar, including the conflicts in UkraineUkraine, Iran and the Middle East, and any related political
or economic responses and counter-responses. We may not discover
all such incidents or activity or be able to respond or otherwise address
them promptly, in sufficient respects or at all.
For example, in early 2018, following an unauthorized
third party misappropriating three of NTS’s domain names, NTS’s management and forensic investigators determined that attackers
compromised a portion of its shared webhosting system, and may have acquired certain customer information limited to its shared webhosting
customers and/or gained access to certain of its shared webhosting servers. In response, NTS took a range of steps designed to further
secure its systems, enhance its security protections, enhance access controls and prevent future unauthorized activity.
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. We are party to license agreements with Aligned Data Centers (Phoenix) PropCo, LLC
and Iron Mountain Data Centers LLC with
respect to the Data Centers located in Phoenix, Arizona, and Edison, New Jersey, respectively,
through which we offer our secure private
cloud hosting services. The Data Centers host our critical infrastructure and are designed
to conform to the global standards for such
centers. Although the terms of the license agreements for the Data Centers located in Arizona
and New Jersey currently extend through
2027 2032 and 2026, respectively, such license agreements may not continue to be available on commercially
reasonable terms, or at all. Additionally,
termination of such license agreements would require us to identify replacement facilities
for our secure private cloud hosting services,
which may not be available at all. Any delay or interruption in our ability to meet demand
for our secure private cloud hosting services
and other IT-related services will result in the loss of potential revenues and could have
a material adverse effect on our business,
results of operations, and financial condition.
A substantial portion of our revenue is derived from a limited number of customers. For instance, Newtek is currently the largest customer of the Company, accounting for 32.5% of our revenue for the fiscal year ended December 31, 2025. The loss of, or a reduction in orders from, any one of our significant customers, adverse changes in their procurement strategies, or their decision to terminate or not renew contracts—many of which are terminable on short notice—could materially and adversely affect our business, financial condition, and results of operations.
Prior to the consummation of the Transactions,
during the 2023 and 2024 fiscal years, NTS relied on a limited number of customers for a material portion of its revenues. Additionally,
during 2024, NTS’s second largest customer informed NTS it would cease utilizing its services due to a consolidation of its vendors.
Following the completion to the Transactions, this customer has since resumed utilizing our services, but we cannot be certain at what
level, or for what period, the customer relationship will continue. A loss of one or more of our customers, if not replaced, could adversely
impact our financial condition and prospects.
Our
ability to be successful and to execute on
our strategies depends on our ability to identify, hire, train and retain qualified executives,
IT professionals, technical engineers,
software developers, operations employees and sales and senior management personnel who maintain
relationships with our customers and
who can provide the technical, strategic and marketing skills required for our company to grow.
Our ability to execute on our sales strategy
is also dependent on our ability to identify, hire, train and retain a sufficient number
of qualified sales personnel. There is a shortage
of qualified personnel in these fields, and like many other companiescompanies, we have recently encountered
additional challenges in hiring and
retaining qualified personnel. We compete with other companies for this limited pool of potential
employees. Furthermore, the implementation
of our strategies may result in changes throughout our business, which may create uncertainty
for our employees. Such uncertainties may
impair our ability to attract, retain and motivate key personnel and could cause customers,
suppliers and others who deal with us to seek
to change existing business relationships. In addition, the industry in which we operate
is generally characterized by significant competition
for skilled personnel, and as our industry becomes more competitive, it could become
especially difficult to retain personnel with unique
in-demand skills and knowledge, whom we would expect to become recruiting targets
for our competitors. We may not be able to recruit or
retain qualified personnel or successfully transition knowledge from departing
employees, and any failure to do so could cause a dilution
of our service-oriented culture and weaken our ability to develop and deliver
existing or new operations and services, either of which
could cause our business to be negatively impacted.
WeBased on the variability of contract and service
type offered with our managed IT security services, professional services and secure private cloud hosting, we report deferred revenue
for any unearned portion of revenue from contracts we entered into during previous periods. In addition, we recognize subscription revenue
from ManyCam
customers monthly over the term of the subscription, which are offered in twelve- and twenty-four-month terms. As a result,
much of the
subscription revenue we report in each period is deferred revenue from subscription agreements or other contracts entered
into during previous periods. Consequently,
a decline in certain new or renewed subscriptionsagreements in any one quarter will negatively affect our
revenue in future quarters. In addition, we might
not be able to immediately adjust our costs and expenses to reflect these reduced revenues.
Accordingly, the effect of significant downturns
in user acceptancedemand offor ManyCamour products and services may not be fully reflected in our results
of operations until future periods. Our subscription model for
ManyCam also makes it difficult for us to quickly increase revenue generated
from ManyCam through additional sales in any period, as revenue
from new subscribers must be recognized over the term of the subscription.
As a result, you should not rely on the amount of subscription
revenue generated in prior quarters as an indication of future results.
Our
overall performance depends in part on worldwide
economic and geopolitical conditions. The United States has experienced cyclical downturns
from time to time in which economic activity
was impacted by rising inflation, falling demand for a variety of goods and services, restricted
credit, poor liquidity, reduced corporate
profitability, volatility in credit and fluctuating interest rates, equity and foreign exchange
markets, bankruptcies and overall uncertainty
with respect to the economy. These economic conditions can arise suddenly, and the full
impact of such conditions can remain uncertain.
In addition, geopolitical developments, such as existing and potential wars, trade wars
or other conflicts, changes in foreign policy
and other events are beyond our control. Any form of civil unrest or other conflict can
increase levels of political and economic unpredictability
regionally or globally and has the potential to increase the volatility of
global financial markets. Any of these effects could have a
material and adverse impact on our business, financial condition and results
of operations. Sustained levels of high inflation could cause
the U.S. Federal Reserve and other central banks to continue to increase interest rates,
which could have the effects of raising the cost
of capital and depressing economic growth, either of which, or the combination thereof,
could hurt the financial and operating results
of our business and impact our ability to raise capital.
Risks Related to the Transactions
As partial consideration for the Acquisition,
we issued Newtek 4,000,000 shares of the Company’s Series A Non-Voting Common Equivalent Stock, par value $0.001 per share (the
“Series A Preferred Stock”). As of March 14, 2025, Newtek owns approximately 30.2% of our issued and outstanding common stock
or common-equivalent equity (on an as-converted and fully-diluted basis), calculated based on the number of shares of our common stock
outstanding as of March 14, 2025. As a holder of our Series A Preferred Stock, Newtek does not have voting rights, except with respect
to certain protective matters, such as amendments to the Charter or Series A Preferred Stock Certificate of Designations (the “Certificate
of Designations”) that significantly and adversely affect the preferences, rights, privileges or powers of the Series A Preferred
Stock.
Pursuant to the Registration Rights Agreement,
Newtek is subject to certain lockup and transfer restrictions with respect to the Series A Preferred Stock for one year following the
closing of the Acquisition. Following this lockup period, Newtek may wish to dispose of some or all of its Series A Preferred Stock, and
as a result, may seek to sell its shares of Series A Preferred Stock, which would automatically convert into shares of our common stock
upon the occurrence of certain qualifying transfers. Any such sale (or the perception that any such a sale may occur), coupled with the
increase in the outstanding number of shares of our common stock following the conversion of the Series A Preferred Stock upon transfer,
could have a dilutive effect to our existing stockholders and may affect the market for, and the market price of, shares of common stock
in an adverse manner.
We may not be able to effectively integrate
the businesses of NTS or realize the anticipated benefits and synergies expected from the Acquisition.
The success of the Acquisition and the transactions
contemplated thereby will depend, in part, on our ability to realize the anticipated benefits from acquiring NTS and its business. The
anticipated benefits and estimates of future growth, synergies and optimizations of the Acquisition may not be realized fully or at all,
may take longer to realize than expected or could have other adverse effects that we do not currently foresee. The failure to realize
the anticipated benefits and synergies expected from the Acquisition could adversely affect our business, financial condition and operating
results.
In addition, we have devoted, and continue to
devote, significant management attention and resources to integrate the respective business practices and operations of NTS. Potential
difficulties that we may encounter as part of the integration process include
the following:
Any
of these issues could adversely affect our ability to maintain relationships with customers, suppliers, employees and other constituencies
or achieve the anticipated benefits of the Acquisition or could negatively impact our earnings or otherwise adversely affect our business
and financial results.
Through the Acquisition, we are entering
a new line of business which is highly competitive.
Through the Acquisition, we acquired NTS’s
existing operations. Entering a new line of business has many risks, including the ability to generate sufficient revenue to fund operations
in the future. While we believe we have sufficient capital to cover integration expenses, we may have to fund NTS’s operations from
cash on hand until sales are sufficient to fund ongoing operations. A new business line may never generate significant revenues or have
enough sales to be profitable. These risks may be further exacerbated by the sale of the Transferred Assets, which have historically been
our main source of revenue. With respect to any new line of business, we may have competitors that are better established in the market,
have greater experience with such line of business or have greater resources than we do. Furthermore, certain of our current employees
may have limited experience with dedicated server hosting, cloud hosting, data storage, managed security, backup and disaster recovery
and other related services and may have limited experience with respect to any other line of business we may enter into as we seek to
expand our operations.
Newtek previously identified material weaknesses
in NTS’s internal controls over financial reporting. If the material weaknesses are not remediated, it may adversely affect our
ability to report our financial condition and results of operations in a timely and accurate manner or lower investor confidence in our
Company and, as a result, negatively affect the value of our common stock.
As disclosed in Newtek’s Annual Report on
Form 10-K for the fiscal year ended December 31, 2023, filed with the SEC on April 1, 2024, Newtek’s management concluded that NTS
did not maintain effective internal controls over financial reporting as of December 31, 2023, as a result of the material weaknesses
related to deficiencies in the conversion of NTS’s system of record for webhosting revenue and ineffective control design and implementation
over revenue recognition. As we continue to integrate NTS’s operations into our business, we are evaluating our internal controls
over financial reporting, including internal controls related to NTS, following the Acquisition. As a result of these integration activities,
certain internal controls may be changed. We are permitted to exclude NTS from our assessment of internal controls over financial reporting
during the first year following the Acquisition. If we fail to maintain adequate internal controls over financial reporting, we may be
subject to litigation or regulatory scrutiny and investors could lose confidence in our reported financial information, which could have
a negative effect on the trading price of our common stock.
We may record goodwill and other intangible
assets that could become impaired and result in material non-cash charges to our results of operations in the future.
We accounted for the Acquisition using the acquisition
method of accounting in accordance with the accounting principles generally accepted in the United States (“GAAP”). Under
the acquisition method of accounting, the assets and liabilities of NTS were recorded, as of completion, at their respective fair values
and added to those of the Company. The reported financial condition and results of operations of the Company for periods after completion
of the Acquisition will reflect NTS’s balances and results after completion of the Acquisition but will not be restated retroactively
to reflect the historical financial position or results of operations of NTS for periods prior to the Acquisition.
Under the acquisition method of accounting, the
total purchase price is allocated to NTS’s tangible assets and liabilities and identifiable intangible assets based on their fair
values as of the Closing Date. The excess of the purchase price over those fair values is recorded as goodwill. We expect that the Acquisition
may result in the creation of goodwill based upon the application of the acquisition method of accounting. To the extent goodwill or intangibles
are recorded and the values become impaired, we may be required to recognize material non-cash charges relating to such impairment. Our
operating results may be significantly impacted from both the impairment and the underlying trends in the business that triggered the
impairment.
NTSIPM
currently historically relied on Newtek for managerial,
financial and accounting support and benefittedbenefits from Newtek’s referral network, and we expect to rely on Newtek’s referral
network in the future.
NTS historically relied on Newtek for managerial,
financial and accounting support to manage NTS’s business. We may not be able to effectively manage our operations without the managerial
assistance of Newtek, and the Acquisition may result in the disruption of, or the loss of momentum in, our ongoing businesses or inconsistencies
in standards, controls, procedures and policies, either of which could negatively impact our ability to generate revenue and income at
the levels NTS historically performed.
In addition, NTS materially benefited from Newtek’s
referral network, including Newtek’s patented NewTracker software, to assist NTS in generating new customers and revenues. For example,
historically approximately 40% of new NTS webhosting customers have resulted from internal and external referrals from Newtek without
material expenditures by NTS for marketing or advertising. In connection with the Acquisition, we entered into a referral arrangement
with Newtek pursuant to which Newtek will continue to refer potential
clients to us at the same level it provided NTS for a fee. Our referral arrangement with Newtek is
terminable by either us or Newtek
at any time. If Newtek does not provide customer referrals to us at the same level it provided NTS,
or if Newtek terminates our referral
arrangement, our ability to gain new customers would be materially adversely affected. We paid Newtek and its affiliates $0.3 million for
the year ended December 31, 2025 in connection with the referral arrangement.
Newtek historically accounted for a material
portion of NTS’s revenue and income.
Newtek historically was NTS’s largest customer
in terms of revenue and income. For example, during the fiscal year ended December 31, 2023 and the nine months ended September 30, 2024,
Newtek accounted for 16% and 27% of NTS’s revenue, respectively. In connection with the Acquisition, we entered into master services
agreements with Newtek and Newtek Bank, National Association (“Newtek Bank”), pursuant to which we provide Newtek and Newtek
Bank with the same level of managed IT services at the same or similar billing rates as NTS provided. If we are unable to deliver the
contracted services or a party terminates or breaches the agreements, or if Newtek or Newtek Bank fail to renew the agreements at the
end their term, the loss of revenues would materially impact our financial condition.
We are subject to varying degrees of regulation
in each of the jurisdictions in which we provide services. Local laws and regulations, and their interpretation and enforcement, differ
significantly among those jurisdictions. These regulations and laws may cover taxation, privacy, data protection, pricing, content, intellectual
property and proprietary rights, distribution,distribution of content, mobile communications, electronic device certification, electronic waste, electronic
contracts contracts
and other communications, consumer protection, web services, the provision of online payment services, unencumbered Internet
access to
our services, the design and operation of websites and the characteristics and quality of services. These laws can be costly
to comply
with, can be a significant diversion to management’s time and effort and can subject us to claims or other remedies, as
well as
negative publicity. Many of these laws were adopted prior to the advent of the Internet and related technologies and, as a result,
do do
not contemplate or address the unique issues that the Internet and related technologies currently produce. Some of the laws that do
reference reference
the Internet and related technologies have been and continue to be interpreted by the courts, but their applicability and scope
remain remain
largely uncertain.
Third parties have in the past, and may in the
future, claim that our
products and solutions infringe or violate their intellectual property rights. For instance, on March 7, 2025,
Cisco Systems, Inc. and
Cisco Technology, Inc. filed a complaint against the Company in the U.S. District Court for the District of Delaware,
alleging that the
Company’s ManyCam software has infringed certain patents and seeking damages and injunctive relief.relief and, as of
December 31, 2025, the Company had incurred approximately $0.7 million in expense for the year ended December 31, 2025 in defense of these
claims. Such claim,claims, and any future claims
of infringement, could cause us to incur significant expenses and, if successfully asserted
against us, could require that we pay substantial
damages and prevent us from using licensed technology that may be fundamental to our
products and solutions. Even if we were to prevail,
any litigation regarding intellectual property could be costly and time-consuming
and divert the attention of our management and key personnel
from our business operations. We maintain insurance to protect against intellectual
property infringement claims and resulting litigation,
but such insurance may not cover or may not be sufficient to cover all potential
claims, liability or expenses. We may also be obligated
to indemnify our business partners in any such litigation, which could further
exhaust our resources. Furthermore, as a result of an intellectual
property challenge, we may be prevented from offering our products
and solutions unless we enter into royalty, license or other agreements.
We may not be able to obtain such agreements at all or on terms
acceptable to us, and as a result, we may be precluded from offering our
products and solutions.
The stock markets in general have experienced
substantial volatility that has often been unrelated to the operating performance of individual companies. These broad market fluctuations
may also adversely affect the trading price of our common stock, especially in light of the macro-economic factors including rising inflation
rates, increased interest rates, bank-specific and broader financial institution liquidity challenges, the Russia-Ukraine conflictconflict, and
the Israel-Hamas conflict.conflict and the ongoing conflict in Iran and the Middle East. In the past, following periods of volatility in the market
price of a company’s securities, stockholders
have often instituted class action securities litigation against those companies.
Such litigation, if instituted, could result in substantial
costs and diversion of management attention and resources, which could significantly
harm our profitability and reputation.
As partial consideration for the Acquisition, we issued Newtek 4,000,000 shares of our Series A Non-Voting Common Equivalent Stock, par value $0.001 per share (the “Series A Preferred Stock”). As of March 13, 2026, Newtek owned approximately 30.6% of our issued and outstanding common stock or common-equivalent equity (on an as-converted and fully-diluted basis), calculated based on the number of shares of our common stock outstanding as of March 13, 2026. As a holder of our Series A Preferred Stock, Newtek does not have voting rights, except with respect to certain protective matters, such as amendments to the Company’s Certificate of Incorporation or the Series A Preferred Stock Certificate of Designations (the “Certificate of Designations”) that significantly and adversely affect the preferences, rights, privileges or powers of the Series A Preferred Stock.
Any sale by Newtek of its shares of Series A Preferred Stock (or the perception that any such a sale may occur), coupled with the increase in the outstanding number of shares of our common stock following the conversion of the Series A Preferred Stock upon transfer, could have a dilutive effect to our existing stockholders and may affect the market for, and the market price of, shares of common stock in an adverse manner.
Management's Discussion & Analysis (MD&A)
New heading “Business Loan Agreement and Credit Agreement and Revolving Promissory Note”
New heading “Stock Repurchase Plan”
New heading “Sources of Revenue”
New heading “Depreciation and amortization expense”
New heading “Litigation expenses”
New heading “Factors Affecting the Comparability of Our Financial Condition and Results of Operations”
New heading “Devices Under Management”
New heading “Depreciation and amortization expenses”
New heading “Litigation expenses”
New heading “Stock Repurchase Plan”
New heading “Business Loan Agreement and Credit Agreement and Revolving Promissory Note”
New heading “Business Combinations”
Removed heading “Managed IT Security Services”
Removed heading “Professional Services”
Removed heading “Procurement Services”
Removed heading “Secure Private Cloud Hosting”
Removed heading “Managed Backup and Disaster Recovery”
Removed heading “Board Appointments”
Removed heading “Revenue Generation Following the Transactions”
Removed heading “Revenue Recognition”
Removed heading “Revenue Generation Prior to the Transactions”
Removed heading “Advertising Revenue”
Removed heading “Sales and marketing expense”
Removed heading “Subscription Revenue”
Removed heading “Sales and marketing expense”
Removed heading “(Loss) Income from Discontinued Operations”
Removed heading “Cash Flow Analysis”
Largest changes
“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, net loss from discontinued operations, impairment loss in connection with the Divestiture and litigation expenses relating to the Cisco ManyCam Litigation. …”see in full comparison
“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. …”see in full comparison
“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. …”see in full comparison
“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.”see in full comparison
Full comparison: every changed paragraph (139)
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 for the fiscal year ended December 31, 2024 relates to the Company prior
to the Transactions (defined below). and all information for the fiscal year ended December 31, 2025 relates to the Company following
the Transactions.
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 We
provide a comprehensive
range of IT-related services, including dedicatedmanaged serverIT hosting,security services, secure private cloud hosting, data storage, managed security, backup
and disaster recovery,
professional services, procurement services, web hosting, 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. businesses.We also offer and 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. We have an over 20-year history of technology innovation and hold eight
patents.
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, a telecommunications service provider. Following 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. In addition, prior to the Closing Date (defined below), we ceased all operations of our Tinychat service and application.
We sell and provide a range of services across
fivesix core areas, each as further described below: (i) managed IT security services, (ii) secure private cloud hosting, (iii) managed backup
and disaster recovery, (iv) professional services, (v) procurement services, secure private
cloud hosting, managed backupservices and disaster recovery and(vi) 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. Managed IT security services are intended to ensure that a client’s IT infrastructure and services remain operational, secure and optimized.
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 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 certain license agreements. As of December 31, 2025, the terms of the license agreements for the Data Centers located in Arizona and New Jersey extended through 2027 and 2026, respectively. Subsequent to year end, we amended our agreement with the Data Center in Phoenix, Arizona through August 31, 2032. With respect to the Data Center in Edison, New Jersey, we expect to either enter into a lease extension by the end of the lease term or lease private suites at another Tier 3 data center facility. 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. The Data Centers each conform to The Uptime Institute’s Tier 3 Certification, which is a globally recognized standard for validating critical data center infrastructure. The Tier 3 classification provides us with a degree of confidence that the Data Centers provide the necessary power, cooling, maintenance, and fault tolerance required for secure and reliable operations. Our critical infrastructure, hosted within the Data Centers, is designed to meet and exceed Tier 3 standards in all relevant categories. This allows us to deliver secure and compliant services to customers within heavily regulated industries, including financial services and healthcare, and other industries. Additionally, we incorporate a redundant, carrier-neutral network design for communications paths, along with multiple hosting locations for our services, which improve the availability and resilience of our cloud services.
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. InWe theactively future, we plan to make arrangementsengage with third parties to incorporate AI features intoenhance our
secure private cloud offerings.offerings with artificial
intelligence (“AI”) features and benefits.
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. Our disaster recovery solutions are designed to offer quick restoration of systems and data with minimal downtime, supported by flexible recovery plans tailored to meet customers’ specific needs. With continuous monitoring, end-to-end encryption, and expert support available 24/7, we aim to ensure that our customers’ data is secure, accessible and compliant with industry standards. 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.
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, hybrid or cloud computing solutions, website development, developing or integrating systems and software, and IT cost management. In addition, we are planning to launch an AI Data Readiness solution in the second quarter of 2026 that we believe will improve the reliability, security, and outcome of adopting AI technologies by assessing, structuring, and securing business data in a safe and effective manner.
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 customers, 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 customers. 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. For each type of procurement service, our customers have their own negotiated contract and payment terms.
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 web hosting services are designed to provide customer websites with an additional layer of protection from cyber attacks and threats.
FollowingIn
addition theto Transactions,our IT and cloud-based solutions, we continueoffer toand 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 anticipatecross integratingsell ManyCam as an offering for our
new customers and seek to optimize our cross-selling efforts of ManyCam with
our other technology solutions.
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 IPM LLC. The Facility will mature on April 10, 2026. As of the date of this Annual Report on Form 10-K, no amounts were outstanding under the Facility. For more information regarding the Facility, see the “Liquidity and Capital Resources” section below.
Stock Repurchase Plan
On May 8, 2025, our Board of Directors (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.
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.
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 “Trial 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 Trial Court in connection with the Lawsuit.
The Final Judgment was enteredLawsuit in our favor of the
Company in the amount of the Award and started the time for filing any post-trial motions or appeal.
In response to the Final Judgment, Cisco filed a motion for Judgment as a Matter of Law (“JMOL”) with the Trial Court. On August 27, 2025, the Trial Court denied Cisco’s JMOL as to validity and infringement. However, the Trial Court granted Cisco’s motion for a new trial with respect to damages. On October 29, 2025, the Trial Court ordered a motions hearing set for November 12, 2025 to consider our motion for reconsideration; however, on November 11, 2025, the Trial Court denied our motion for reconsideration.
Cisco also appealed the Trial Court judgment of validity and infringement (the “Appeal”) to the U.S. Court of Appeals for the Federal Circuit (the “Appeals Court”). Each party is expected to complete and submit its briefs with respect to the Appeal by March 31, 2026. Upon submission of such briefs, the Appeals Court will then decide whether the parties will appear to argue the Appeal or to render a decision on the Appeal based on the briefs submitted by each party.
On March 7, 2025, Cisco Systems, Inc. and Cisco Technology, Inc. filed a complaint against us in the U.S. District Court for the District of Delaware, alleging that our ManyCam software has infringed U.S. Patent Nos. 8,830,293 and 8,941,708 and seeking damages and injunctive relief. We intend to vigorously defend against these claims. In October 2025, we filed an inter partes review (“IPR”) with the Patent Review Board to invalidate Cisco Patents 8,830,293 and 8,941,708. On February 24, 2026, the Patent Review Board denied the IPR related to Cisco Patent 8,941,708. The Patent Review Board has not yet rendered a decision on the validity of Cisco Patent 8,830,293.
We have not recorded any liability for this matter as we do not believe a loss is probable, and we cannot estimate any reasonably possible loss or range of possible loss. It is possible that an unfavorable resolution to this matter could have an adverse effect on our results of operations, financial position or cash flows. As of December 31, 2025, we had incurred approximately $0.7 million in expense for the year ended December 31, 2025 in defense of these claims.
Pre-TransactionFull
Year 2025 Operational Highlights
Financial highlights during the three months and year ended December 31, 2025:
Sources of Revenue
Our main sources of revenue are described below. As a result of the variability of contract and service type, some of the revenue we report in each period is deferred revenue from contracts we entered into during previous periods. This may make it difficult for us to quickly increase revenue through the entry into new contracts in any period, and a decline in new or renewed contracts in any one quarter will negatively affect our revenue in future quarters. As a result, revenue generated in prior quarters may not provide a reliable indication of future results.
Revenue Generation Following the Transactions
Following the Transactions, we now generate revenue
from our five core areas as described below:
Customers pay for
of our managed IT security services
on a subscription or contract-based model. Customers typically pay a recurring fee, which is generallyoften based on service levelservice-level agreements
that define the specific services
and performance metrics.
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 business-critical applications and client data. Customers of our secure private cloud hosting services are generally invoiced on a monthly basis and pay a monthly fee, with revenue recognized on a monthly basis.
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 certain license agreements. As of December 31, 2025, the terms of the license agreements for the Data Centers located in Arizona and New Jersey extended through 2027 and 2026, respectively. Subsequent to year end, we amended our agreement with the Data Center in Phoenix, Arizona through August 31, 2032. With respect to the Data Center in Edison, New Jersey, we expect to either enter into a lease extension by the end of the lease term or lease private suites at another Tier 3 data center facility. 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. The Data Centers each conform to The Uptime Institute’s Tier 3 Certification, which is a globally recognized standard for validating critical data center infrastructure. The Tier 3 classification provides us with a degree of confidence that the Data Centers provide the necessary power, cooling, maintenance, and fault tolerance required for secure and reliable operations. Our critical infrastructure, hosted within the Data Centers, is designed to meet and exceed Tier 3 standards in all relevant categories. This allows us to deliver secure and compliant services to customers within heavily regulated industries, including financial services and healthcare, and other industries. Additionally, we incorporate a redundant, carrier-neutral network design for communications paths, along with multiple hosting locations for our services, which improve the availability and resilience of our 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 artificial intelligence (“AI”) features into our secure private cloud offerings. Revenue from such cloud services is recognized ratably over the period in which the cloud services are provided.
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.
Revenue in connection with professional services is generally recognized upon achievement of milestones or on a straight line basis for all fixed fee arrangements.
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.
For each type of procurement service, our customers have their own negotiated contract and payment terms. When we provide a combination of hardware and software products with the provision of services, we will 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 typically 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 allocable costs, or use observable stand-alone prices when they are available.
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.
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.
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.
Each customer
of our web hosting solutionscustomers has
their own contract and payment terms.terms Contractwith respect to our web hosting services. The duration of such contracts is
typically between 1-4one and four years, although the term may vary based on the customer’sneeds of each particular customer. Customers of our web
needs. Web hosting services customersare invoiced on a monthly basis and pay a monthly fee and there are typically no upfront costs associatedfee, 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.
What changed in the latest 10-Q
Risk Factors
New heading “Supply chain constraints in connection with our procurement services have in the past and may in the future delay revenue recognition, increase our costs and adversely affect our business, financial condition and results of operations.”
Largest changes
“We rely on third-party suppliers and distribution channels for the memory, CPU and GPU components incorporated into the hardware we procure and, in certain cases, configure for our customers, and we do not control the availability, pricing or timing of delivery of these components. We have experienced, and may in the future experience, supply shortages, price increases and longer lead times affecting these components. …”see in full comparison
“Supply chain constraints in connection with our procurement services have in the past and may in the future delay revenue recognition, increase our costs and adversely affect our business, financial condition and results of operations.”see in full comparison
“During the six months ended June 30, 2026, supply chain constraints extended our product lead times compared to historical levels, resulting in delays between customer bookings and product shipments. As a result of these delays, a portion of our booked orders remained unrecognized as revenue pending fulfillment and delivery as of June 30, 2026. …”see in full comparison
“As part of our procurement services offering, we obtain hardware and software products, including servers and other equipment incorporating memory, CPU and GPU components, on behalf of our customers. Depending on the terms of the applicable customer arrangement, we may act as an agent, pursuant to which our vendors drop ship products directly to our customers. Under this type of arrangement, we do not take control of the underlying products, and we recognize procurement revenue on a net basis when the products are shipped. …”see in full comparison
see in full comparisonThereExcept as set forth below, there were no material changes to the Risk Factors disclosed in “Item 1A. Risk Factors” in the Form10-K10-K.duringThe risk factor below supplements thethreeriskmonthsfactorsendeddisclosedMarchin31,the2026.Form 10-K. For more information concerning our other risk factors, please see “Item 1A. Risk Factors” in the Form 10-K.
Full comparison: every changed paragraph (5)
ThereExcept as set forth below, there were no material changes to the Risk Factors
disclosed in “Item 1A. Risk Factors” in the Form 10-K10-K. duringThe risk factor below supplements the threerisk monthsfactors endeddisclosed Marchin 31,the 2026.Form 10-K. For more information concerning
our other risk factors, please see “Item 1A. Risk Factors” in the Form 10-K.
Supply chain constraints in connection with our procurement services have in the past and may in the future delay revenue recognition, increase our costs and adversely affect our business, financial condition and results of operations.
As part of our procurement services offering, we obtain hardware and software products, including servers and other equipment incorporating memory, CPU and GPU components, on behalf of our customers. Depending on the terms of the applicable customer arrangement, we may act as an agent, pursuant to which our vendors drop ship products directly to our customers. Under this type of arrangement, we do not take control of the underlying products, and we recognize procurement revenue on a net basis when the products are shipped. With respect to larger or project-based arrangements, including sales of AI-related equipment, we may act as principal, pursuant to which we obtain the underlying components. Under this type of arrangement, we are primarily responsible for fulfilling the customer’s order and bear inventory and fulfillment risk until control of the product transfers to the customer, at which point we recognize revenue on a gross basis.
We rely on third-party suppliers and distribution channels for the memory, CPU and GPU components incorporated into the hardware we procure and, in certain cases, configure for our customers, and we do not control the availability, pricing or timing of delivery of these components. We have experienced, and may in the future experience, supply shortages, price increases and longer lead times affecting these components. Supply chain constraints may be driven by factors such as industry-wide allocation constraints, manufacturing capacity limitations, logistics and freight constraints, inflation, geopolitical tensions, trade disputes, tariffs, natural disasters, or changes in our suppliers’ financial or business condition.
During the six months ended June 30, 2026, supply chain constraints extended our product lead times compared to historical levels, resulting in delays between customer bookings and product shipments. As a result of these delays, a portion of our booked orders remained unrecognized as revenue pending fulfillment and delivery as of June 30, 2026. We cannot predict with certainty when these conditions will normalize, and continued constraints could result in further delays in revenue recognition, causing our reported revenue and results of operations to fluctuate and not accurately reflect underlying customer demand. These disruptions have also altered, and may in the future alter, the cost structure associated with fulfilling customer orders, which has resulted, and may in the future result, in losses on orders originally booked at expected margins. We cannot assure you that similar cost increases will not recur, particularly if constraints persist, worsen, or are replaced by new sources of disruption. If we are unable to effectively manage these constraints and related cost pressures, our customers cancel orders and seek products from our competitors and our gross margins, results of operations and financial condition could be materially and adversely affected.
Management's Discussion & Analysis (MD&A)
New heading “Items Affecting Comparability of Results of the Second Quarter”
New heading “Six Months Ended June 30, 2026 Compared to Six Months Ended June 30, 2025”
New heading “Costs and Expenses”
New heading “Cost of revenue”
New heading “Sales marketing and product development expense”
New heading “General and administrative expense”
New heading “Non-Operating Income”
Largest changes
“Six Months Ended June 30, 2026 Compared to Six Months Ended June 30, 2025”see in full comparison
Full comparison: every changed paragraph (48)
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 and six months ended MarchJune 31,30, 2026 and 2025, (ii) the consolidated financial statements
and notes thereto for the year ended December 31, 2025 included in our Annual Report on Form 10-K (the “Form 10-K”) filed
with the Securities and Exchange Commission (the “SEC”) on March 17, 2026 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, 2025, all amounts herein are unaudited.
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 certain license agreements. As of MarchJune 31,30, 2026, the terms of the license agreements
for the Data Centers located in Arizona and New Jersey extend through 2032 and 2026,2027, respectively. With respect to the Data Center in
Edison, New Jersey, the lease automatically renewed on April 30, 2026 for a one year term. 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. The Data Centers each conform to The Uptime Institute’s Tier 3 Certification, which is
a globally recognized standard for validating critical data center infrastructure. The Tier 3 classification provides us with a degree
of confidence that the Data Centers provide the necessary power, cooling, maintenance, and fault tolerance required for secure and reliable
operations. Our critical infrastructure, hosted within the Data Centers, is designed to meet and exceed Tier 3 standards in all relevant
categories. This allows us to deliver secure and compliant services to customers within heavily regulated industries, including financial
services and healthcare, and other industries. Additionally, we incorporate a redundant, carrier-neutral network design for communications
paths, along with multiple hosting locations for our services, which improve the availability and resilience of our cloud 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, hybrid or cloud computing solutions, website development, developing or integrating systems and software, and IT cost
management. In addition, we are planning toon launchlaunching an AI Data Readiness solution in the second quarter of 2026 that we believe will improve
the reliability, security, and outcome of adopting AI technologies by assessing, structuring, and securing business data in a safe and
effective manner.
Second Quarter and First QuarterHalf 2026 Operational Highlights
Operational highlights during the three and six months
ended MarchJune 31,30, 2026:
Second Half 2026 Business Objectives
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 and six months ended MarchJune 31,30, 2026 and 2025, 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.
Items Affecting Comparability of Results of the Second Quarter
Revenue from Newtek and its affiliates was impacted by Newtek’s ongoing initiatives to reduce information technology spend. We partially offset this decline in revenue through growth in recurring revenue from customers who are not related parties, including the addition of new customer relationships and service contracts during the period. For the three months ended June 30, 2026 and 2025, revenue from Newtek and its affiliates represented approximately 28% and 33% of total revenue, respectively.
During the three months ended June 30, 2026, we experienced supply chain constraints affecting the availability of memory, CPU and GPU components. These constraints extended product lead times compared to historical levels, resulting in delays between customer bookings and product shipments. As a result, a portion of booked orders during the quarter remained unrecognized as revenue pending fulfillment and delivery, which we expect to recognize in future quarters as the underlying products and services are shipped and installed. Deferred revenue was $4,469,109 as of June 30, 2026, which reflects amounts invoiced or collected for orders that had not yet been fulfilled. We are unable to predict with certainty when these supply chain conditions will normalize, and continued constraints affecting memory, CPU or GPU component availability could result in further delays in revenue recognition in future periods.
In addition, during the quarter, a significant customer order was delayed and fulfilled across two reporting periods due to supply chain constraints affecting both our vendor and distribution channel. These constraints altered the cost structure associated with fulfilling the order. The initial shipment, completed in the first quarter of 2026, was recognized at expected margins, while the subsequent shipment, completed during the second quarter, incurred higher component and freight costs, resulting in a loss on that portion of the order. As a consequence, the combined order resulted in a loss, which contributed to the increase in cost of revenue described below and negatively impacted our results of operations for the three months ended June 30, 2026.
Three Months Ended MarchJune 31,30, 2026 Compared to Three Months Ended
March 31,June 30, 2025
Total revenue increased by 15.2%13% to $6,354,751
for the three months ended March 31, 2026 from $5,518,038$6,462,542 for the three months ended MarchJune 31,30, 2026 from $5,722,599 for the three months ended June 30, 2025. This increase was driven by increased
managed information technology revenue, attributed to both new customers as well as the expansion of services sold to existing customers,
and an increase in procurement revenue related to sale of AI-related equipment to customers, partially offset by decreases in professional
services revenue and subscription revenue.
The following table sets forth our total revenue
for the three months ended MarchJune 31,30, 2026 and 2025, 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:
The increase in revenue is attributed to an increase
in managed information technology revenue of 10.2%8.4% compared to the prior year period, as well as an increase in procurement revenue of
78.4% 64.0% compared to the prior year period. With respect to our core managed information technology solutions, which consist of managed IT
security services andservices, managed backup and disaster recovery solutions,solutions and web hosting, revenue increased 19%8.4% compared to the prior year period. This increase was partially offset by a decrease of 5.5% in managed information technology revenue from Newtek in connection with its ongoing initiatives to reduce information technology spend. The increase
in revenue was partially offset by a decrease in professional services revenue compared to the prior year of $243,307,$325,760, or 33.5%,47.3%, and a
decrease in subscription revenue compared to the prior year of $27,163,$29,139, or 9.7%.10.5%. Our subscription revenue relates to the sales from our
ManyCam software. The decrease in subscription revenue was primarily driven by increased competition
in the virtual camera and streaming software space.
Total costs and expenses for the three months
ended MarchJune 31,30, 2026 increased by $270,968,$1,122,615, or 4.0%,16.4%, as compared to the three months ended MarchJune 31,30, 2025. The following table presents
our costs and expenses for the three months ended MarchJune 31,30, 2026 and 2025, the increase or decrease between those periods and the percentage
increase or decrease between those periods and the percentage of total revenue that each represented for those periods:
Our cost of revenue for the three months
ended MarchJune 31,30, 2026 increased by $795,503,$934,166, or 32.3%,32.7%, as compared to the three months ended MarchJune 31,30, 2025. This increase was
primarily due to an increase in costs associated with procurement equipment of $656,624,$1,050,058, managed services expenses of $2,851,
subscriptions and licensing expenses of $352,364, and rent related to our Data Centers of $11,898,$49,262, offset by decreases in
professional and consulting costs of $184,744 and web hostingservices expense of $8,147.$147,951 and a decrease in cost of subscription revenue of $17,203. Supply chain disruption caused difficulty sourcing product at normalized cost which negatively impacted one of our larger customer transactions by $101,964.
Our sales marketing and product development expense
for the three months ended MarchJune 31,30, 2026 increaseddecreased by $12,665,$71,729, or 1.7%,8.5%, as compared to the three months ended MarchJune 31,30, 2025. The increase
decrease in sales marketing and product development expense for the three months ended MarchJune 31,30, 2026 was primarily due to a decrease in headcount and salary costs of $52,208 and marketing expenses of $39,316, offset by an increase in consulting
expense expenses of $26,150$13,032 and commissions of $31,014, partially offset by a decrease in salary and salary-related expenses of approximately $81,080.
Headcount on our sales team decreased from 15 in the prior year period to approximately 13 people in the three months ended March 31,
2026, and the associated salary and salary-related costs are included in “sales marketing and product development expense”
for the three months ended March 31, 2026.$6,583.
Our general and administrative expense for the
three months ended MarchJune 31,30, 2026 decreasedincreased by $430,266,$73,284, or 14.6%,3.0%, as compared to the three months ended MarchJune 31,30, 2025. The decrease
increase in general and administrative expense for the three months ended MarchJune 31,30, 2026 was primarily due to aan decreaseincrease in legal, professional
and accounting expenses of $207,686,$131,277. asAdditionally, there was an increase in rent expense of $14,996 due to the priorextension yearof includedthe Transaction-relatedlease agreement in Arizona. These increased expenses andwere offset by a decrease in insurance costs of $49,476,
$82,981, compared to prior yearyear, which included some initial start-up costs. Salary and salary related expenses increased by $87,404, primarily
as a result of increased benefit costs compared to the three months ended March 31, 2026, but was offset by a decrease in $144,075
of non-cash share-based compensation. Overall headcount remained unchanged at 41 individuals.
The following table presents the components of
non-operating income for the three months ended MarchJune 31,30, 2026 and the three months ended MarchJune 31,30, 2025, the increase or decrease between
those periods and the percentage increase or decrease between those periods and the percentage of total revenue that each represented
for those periods:
Non-operating income for the three months ended
March 31,June 30, 2026 was $83,378,$57,848, ana increasedecrease of $986,$93,830, or 1.2%,61.9%, as compared to non-operating income of $82,392$151,678 for the three months ended March
31,June 30, 2025. The increasedecrease was primarily a result of a decrease in the amount of principal we invested and at varying interest rates. In addition, the three months ended June 30, 2025 included other income of $63,750 related to the sale of a domain name that was not in use by the Company.
Our provision for income taxes consists of federal,
foreign and state taxes, as applicable, in amounts necessary to align our year-to-date tax provision with the effective rate that we expect
to achieve for the full year. For the three months ended MarchJune 31,30, 2026, we recorded an income tax benefit of $24,590$103,025 consisting primarily
of foreign taxes. For the three months ended MarchJune 31,30, 2025, we recorded a non-recurringan income tax benefitprovision of $2,060,065, primarily related
to a partial reversal of our U.S. valuation allowance as the Acquisition (defined below) created a source of future U.S. taxable income
allowing for the recognition of certain deferred tax assets.$72,007.
Six Months Ended June 30, 2026 Compared to Six Months Ended June 30, 2025
Revenue
Total revenue increased by 14% to $12,817,293 for the six months ended June 30, 2026 from $11,240,637 for the six months ended June 30, 2025. The increase was driven by increased managed information technology revenue, attributed to both new customers as well as the expansion of services sold to existing customers, and an increase in procurement revenue related to sale of AI-related equipment to customers, partially offset by decreases in professional services revenue and subscription revenue.
The following table sets forth our total revenue for the six months ended June 30, 2026 and the six months ended June 30, 2025, 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:
The increase in revenue was partially offset by a decrease in professional services revenue compared to the prior year period of $569,067, or 40.2%. Our subscription revenue for the six months ended June 30, 2026 relates to the sales from our ManyCam software, which decreased by $56,302, or 10.1%, as compared to the six months ended June 30, 2025. The decrease in subscription revenue was primarily driven by a decrease in new subscribers to our ManyCam software.
Costs and Expenses
Total costs and expenses for the six months ended June 30, 2026 increased by $1,393,583, or 10.2%, as compared to the six months ended June 30, 2025. The following table presents our costs and expenses for the six months ended June 30, 2026 and 2025, 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:
Cost of revenue
Our cost of revenue for the six months ended June 30, 2026 increased by $1,729,669, or 32.5%, as compared to the six months ended June 30, 2025. This increase was primarily due to an increase in the expenses associated with procurement equipment and related costs of $1,706,681, managed services expenses of $398,576, offset by decreases in professional services expenses of $332,695 and subscription expenses of $42,894.
Sales marketing and product development expense
Our sales marketing and product development expense for the six months ended June 30, 2026 decreased by $59,064, or 3.7%, as compared to the six months ended June 30, 2025. The decrease in sales marketing and product development expense for the six months ended June 30, 2026 was primarily due to a decrease in salary-related expenses of approximately $133,805, offset by increases in consulting costs of $43,387 and commissions of $37,597.
General and administrative expense
Our general and administrative expense for the six months ended June 30, 2026 decreased by $356,982, or 6.6%, as compared to the six months ended June 30, 2025. The decrease in general and administrative expenses for the six months ended June 30, 2026 was primarily due to insurance expense decreases of $132,457, a decrease in non-cash stock-based compensation expense of $180,263 and a decrease in legal and accounting fees of $76,935.
Non-Operating Income
The following table presents the components of non-operating income for the six months ended June 30, 2026 and the six months ended June 30, 2025, the decrease between those periods, the percentage decrease between those periods and the percentage of total revenue that each represented for those periods:
Non-operating income for the six months ended June 30, 2026 was $141,226, a decrease of $92,844, or 39.7%, as compared to non-operating income of $234,070 for the six months ended June 30, 2025. The decrease was primarily a result of a decrease in the amount of principal we invested and at varying interest rates. Other income for the six months ended June 30, 2025 related to the sale of a domain name that we are not using.
Income Taxes
Our provision for income taxes consists of federal, foreign and state taxes, as applicable, in amounts necessary to align our year-to-date tax provision with the effective rate that we expect to achieve for the full year. For the six months ended June 30, 2026, we recorded an income tax benefit of $127,615, consisting primarily of foreign taxes. For the six months ended June 30, 2025, we recorded an income tax benefit of $1,988,058, which included a discrete tax benefit of $1,665,189, primarily related to a partial reversal of our valuation allowance, as the Acquisition created a source of future taxable income allowing for the recognition of certain deferred tax assets.
Currently, our primary source of liquidity is
cash on hand. We believe that our cash and cash equivalents balance, and our expected cash flows from operations will be sufficient to
meet all of our financial obligations for at least one year from the date these financial statements are issued. As of MarchJune 31,30, 2026,
we had $8,084,650$7,485,151 of cash and cash equivalents,equivalents. In addition, on June 18, 2026, our shelf registration statement on Form S-3 was declared effective by the SEC, pursuant to which includedwe $1,046,021may offer up to $50,000,000 of restrictedcommon cash.stock, preferred stock, warrants and/or units, from time to time, providing us with additional flexibility to access the capital markets if needed.
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 expired on the one-year anniversary
of such date. For the threesix months ended MarchJune 31,30, 2026, we purchased 50,000 shares of common stock pursuant to the Stock Repurchase
Plan at an average price of $1.67 per share, or an aggregate of $83,491.$83,491, all of which occurred during the three months ended March 31, 2026.
On January 2, 2025, 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 the Divestiture and the
Acquisition together, the “Transactions”) pursuant to that certain Asset Purchase Agreement (the “Divestiture Agreement”),
by and among us, our wholly owned subsidiaries Paltalk Holdings, Inc., Paltalk Software, Inc., Camshare, Inc., A.V.M. Software, Inc.,
and Vumber, LLC (collectively, the “Sellers”), and Meteor Mobile. 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 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”) or the Transferred Assets, other than certain excluded liabilities (the “Divestiture Closing
Consideration”). 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:
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:
Net cash used in operating activities was $195,712
$786,730 for the threesix months ended MarchJune 31,30, 2026, as compared to net cash provided by operating activities of $1,744,783$856,105 for the threesix months
ended MarchJune 31,30, 2025. Cash used in operations for the six months ended June 30, 2026 was primarily used in conjunction with the procurement of product in connection with the increase in procurement revenue. The amount of cash provided by operations for the threesix months ended MarchJune 31,30, 2025 was primarily attributed to
the change in the business activities of the Company following the Transactions compared to the threesix months ended MarchJune 31,30, 2026, 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.
Net cash used in investing activities for the
three six months ended MarchJune 31,30, 2026 was $70,208$78,689 and was used to purchase fixed assets for use in the business. Net cash used in investing
activities for the threesix months ended MarchJune 31,30, 2025 was $4,000,000$4,280,149 and related to the cash consideration paid by the Company to Newtek
in connection with the Acquisition.Acquisition, as well as used to purchase fixed assets for use in the business.
Net cash used in financing activities was
$83,491 for the threesix months ended MarchJune 31,30, 2026, and was used to repurchase shares of our common stock pursuant to our Stock
Repurchase Plan. Net cash provided by financing activities was $1,350,000$1,137,202 for the threesix months ended MarchJune 31,30, 20252025, and was
attributed to the $1,350,000 consideration received in connection with the Divestiture.Divestiture netted against the $212,798 used in connection with the Stock Repurchase Plan.
As of MarchJune 31,30, 2026, we did not have any off-balance
sheet arrangements.
IPM insider buying and selling (Form 4)
Since 2026-04-11, insiders reported open-market purchases in 5 Form 4 filings (5 insiders, 7 trade dates, 79,972 shares, about $146.4K) and open-market sales in 0 filings. Net open-market shares: 79,972 (purchases minus sales); net value about $146.4K.Totals add up every open-market (code P and S) line in those filings, using the prices reported in the filings. Awards, option exercises, tax withholding and gifts are listed below but not counted.
| Trade date | Insider | Transaction | Shares | Price | Value |
|---|---|---|---|---|---|
| 2026-05-21 | Katz Jason |
Open-market purchase | 10,000 | $1.97 | $19.7K |
| 2026-05-21 | Sloane Barry |
Open-market purchase | 5,000 | $1.95 | $9.8K |
| 2026-05-19 | Silberstein John |
Open-market purchase | 1,000 | $1.92 | $1.9K |
| 2026-05-15 | Abada Yoram |
Open-market purchase | 1,000 | $1.89 | $1.9K |
| 2026-04-10 | Adam Katz 2012 Revocable Trust |
Open-market purchase | 19,309 | $1.79 | $34.6K |
| 2026-04-09 | Adam Katz 2012 Revocable Trust |
Open-market purchase | 2,200 | $1.79 | $3.9K |
| 2026-04-08 | Adam Katz 2012 Revocable Trust |
Open-market purchase | 19,951 | $1.80 | $35.9K |
| 2026-04-07 | Adam Katz 2012 Revocable Trust |
Open-market purchase | 21,512 | $1.80 | $38.7K |
Well-known investors holding IPM (13F)
| Investor | Quarter | Shares | Reported value | % of their 13F | Change vs prior quarter |
|---|---|---|---|---|---|
| Renaissance Technologies | 2026-06-30 | 45,600 | $79.3K | 0.0% | Added 10% |
| Two Sigma Investments | 2026-06-30 | 38,577 | $67.1K | 0.0% | No change |
| Citadel Advisors (Ken Griffin) | 2026-06-30 | 18,548 | $32.3K | 0.0% | New position |