UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

__________________________________________

SCHEDULE 14A

__________________________________________

Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934

Check the appropriate box:

PALTALK, INC.

(Name of Registrant as Specified In Its Charter)

_________________________________________________________________
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check all boxes that apply):

30 Jericho Executive Plaza, Suite 400E
Jericho, New York 11753
(212) 967-5120

Dear Stockholder:

You are cordially invited to attend the special meeting of stockholders (the “Special Meeting”) of Paltalk, Inc. (the “Company”) to be held on December 30, 2024 at 9:00 a.m., Eastern Time. The Special Meeting will be conducted as a virtual meeting of stockholders by means of a live audio webcast. We believe that hosting a virtual meeting will enable greater stockholder attendance and participation from any location. You will not be able to attend the Special Meeting in person. You will be able to attend the Special Meeting online by visiting https://web.lumiconnect.com/207490181.

In June of 2022, the Company announced that it had engaged an investment banker to help the Company explore strategic opportunities, including, but not limited to, potential mergers or acquisitions of other assets or entities that would be synergistic to the Company’s businesses. Over the past two years and in an effort to achieve that goal, the Company met with over 25 companies and analyzed numerous potential mergers and acquisitions. Throughout this evaluation process, the Company’s overall goal was to identify an opportunity that had the greatest potential to increase stockholder value. Based, in part, on the Company’s June 2022 acquisition and integration of its ManyCam business, the Company believes that engaging in a strategy to serve other businesses (a “B to B” strategy) as opposed to individual consumers (a “B to C” strategy), would scale faster and provide the Company with more opportunity to cross-sell products, including ManyCam. Furthermore, the Company believes that cloud hosting, cybersecurity and artificial intelligence are rapidly growing areas that will continue to grow, as well as afford the Company potential opportunities to explore acquisitions of similar companies. The Company believes that the acquisition of Newtek Technology Solutions, Inc. (“NTS”) and the related divestiture, as further described below and in the accompanying proxy statement, represent a unique and accretive growth opportunity that would be consistent with the Company’s strategic focus on technology, while providing increased scale, new customers and greater geographic diversity, therefore increasing stockholder value. The Company’s management team has over two decades of experience in a technology adjacent field, which the Company believes will be beneficial for integrating and successfully operating NTS following the acquisition described below.

On August 11, 2024, the Company entered into an Agreement and Plan of Merger (as it may be amended from time to time in accordance with the terms thereof, the “Acquisition Agreement”), by and among the Company, PALT Merger Sub 1, Inc., a New York corporation and a direct and wholly owned subsidiary of the Company (“First Merger Sub”), PALT Merger Sub 2, LLC, a Delaware limited liability company and a direct and wholly owned subsidiary of the Company (“Second Merger Sub”), NTS, a New York corporation, and NewtekOne, Inc., a Maryland corporation and the sole stockholder of NTS (“Newtek”), pursuant to which (i) First Merger Sub will merge with and into NTS, with NTS continuing as the interim surviving entity (the “Interim Surviving Entity” and such merger, the “First Step Merger”), and (ii) immediately following the consummation of the First Step Merger, the Interim Surviving Entity will merge with and into Second Merger Sub, with Second Merger Sub continuing as the surviving entity (such transactions collectively, the “Acquisition”).

Pursuant to the Acquisition Agreement, the Company agreed to (i) pay Newtek an amount in cash equal to $4,000,000, subject to customary purchase price adjustments (the “Acquisition Closing Cash Consideration”), and (ii) issue to Newtek 4,000,000 shares of a newly created series of the Company’s preferred stock, the Series A Non-Voting Common Equivalent Stock (the “Preferred Stock” and such shares issued at the closing of the Acquisition, the “Closing Stock Consideration” and together with the Closing Cash Consideration, the “Acquisition Closing Consideration”) (in each case, subject to adjustment as further described in the accompanying proxy statement). The Preferred Stock will automatically convert into one share of the Company’s common stock (subject to certain customary anti-dilution adjustments) upon the occurrence of certain qualifying transfers by Newtek (the shares issuable upon such conversion, “Conversion Shares”).

In addition to the Closing Consideration, the Acquisition Agreement provides that Newtek is entitled to receive up to $5,000,000 (the “Acquisition Earn-Out Amount”) based on the Company’s achievement of certain cumulative average Adjusted EBITDA thresholds for the 2025 and 2026 fiscal years. The Acquisition Earn-Out Amount may be paid, at the Company’s sole discretion (subject to certain exceptions), in cash (the “Acquisition Earn-Out Cash Consideration”), in shares of Preferred Stock (the “Acquisition Earn-Out Stock Consideration”) or in a combination thereof. The issuance of the Closing Stock Consideration, the Acquisition Earn-Out Stock Consideration (if any) and the Conversion Shares is referred to herein as the “Stock Issuance”.

On November 7, 2024, the Company entered into an Asset Purchase Agreement (as it may be amended from time to time in accordance with the terms thereof, the “Divestiture Agreement”), by and among the Company, certain of the Company’s subsidiaries and Meteor Mobile Holdings, Inc. (“Meteor Mobile”), pursuant to which the Company and its subsidiaries party thereto agreed to sell the Company’s telecommunications services provider, “Vumber”, as well as its “Paltalk” and “Camfrog” applications and certain assets related to such services provider and applications (the “Transferred Assets”), to Meteor Mobile (the “Divestiture”) in exchange for (i) a cash payment of $1,350,000 and (ii) the assumption of all liabilities and obligations of the Company and its subsidiaries party to the Divestiture Agreement arising out of or relating to the business of such applications or the Transferred Assets on or after the closing of the Divestiture, other than certain excluded liabilities, upon the terms and subject to the conditions set forth in the Divestiture Agreement (collectively, the “Divestiture Closing Consideration”).

In addition to the Divestiture Closing Consideration, the Divestiture Agreement provides that the Company is entitled to receive, for the six-month period beginning July 1, 2025 and each subsequent annual period beginning on January 1, 2026, 2027 and 2028, certain cash earn-out payments based on a percentage of cash revenue, net of any refunds, received by Meteor Mobile that is attributable to the business of the Transferred Assets.

Following the Divestiture, the Company will no longer be engaged in the business of providing video-based, live streaming, virtual camera and telecommunications software to consumers, as and to the extent such businesses are currently conducted by the Company pursuant to the “Vumber,” “Paltalk” and “Camfrog” applications. In connection with and prior to the closing of the Acquisition, the Company will also be ceasing any operations relating to its “Tinychat” application. Following the closing of the Divestiture and subject to the limited rights to be granted pursuant to Meteor Mobile pursuant to the Divestiture Agreement, the Company will retain all patents and patent applications and any rights or causes of action related to such patents and patent applications (including the Company’s previously disclosed patent litigation against Cisco Systems, Inc.).

The Company’s common stock is listed on The Nasdaq Capital Market under the ticker symbol “PALT.” As a result, the Company is subject to Nasdaq Listing Rule 5635, pursuant to which stockholder approval is required prior to certain issuances of securities. In addition, Section 271 of the Delaware General Corporation Law, as amended (the “DGCL”), which governs Delaware corporations, requires stockholder approval prior to the sale of all or substantially all of a Delaware corporation’s assets. Accordingly, at the Special Meeting, Company stockholders will be asked to consider and vote upon: (i) a proposal to approve, for purposes of complying with the applicable provisions of Nasdaq Listing Rule 5635, the Stock Issuance (the “Stock Issuance Proposal”), (ii) a proposal to approve the sale of the Transferred Assets in connection with the Divestiture, which may be deemed to be a sale of substantially all of the Company’s assets under Section 271 of the DGCL (the “Divestiture Proposal”), (iii) a proposal to approve, on a non-binding, advisory basis, certain compensation that may be paid or become payable to the Company’s named executive officers in connection with the Acquisition and the Divestiture (the “Compensation Proposal”) and (iv) a proposal to adjourn the Special Meeting to a later date or dates, if necessary, to permit further solicitation and vote of proxies if there are insufficient votes for, or otherwise in connection with, the approval of either of the Stock Issuance Proposal or the Divestiture Proposal (the “Adjournment Proposal”).

In connection with the Company’s entry into the Acquisition Agreement, on August 11, 2024, the Company and Newtek entered into voting and support agreements with certain stockholders, executive officers, and current and former directors of the Company (the “Paltalk Holders”), who collectively represent approximately 42.8% of the issued and outstanding shares of Company common stock as of November 13, 2024, whereby such Paltalk Holders, in their capacities as beneficial owners of the Company’s common stock (and, as applicable, not in their capacities as directors or officers of the Company), agreed to, among other things, vote or cause to be voted all common stock beneficially owned by the Paltalk Holders in favor of the Stock Issuance Proposal, the Divestiture Proposal and the Adjournment Proposal and against alternative transactions.

Each of these proposals is more fully described in the accompanying proxy statement, which each Company stockholder is encouraged to carefully read.

We are providing the accompanying proxy statement and proxy card to our stockholders in connection with the solicitation of proxies to be voted at the Special Meeting (including following any adjournments, postponements or recesses of the Special Meeting). Information about the Special Meeting, the Acquisition, the Divestiture and other related business to be considered at the Special Meeting is included in the accompanying proxy statement. Whether or not you plan to attend the Special Meeting virtually, we urge you to read the accompanying proxy statement, including the Annexes and the accompanying financial statements of NTS, carefully and in its entirety. In particular, we urge you to carefully read the section titled “Risk Factors” beginning on page 17 of the accompanying proxy statement.

After careful consideration, the Board of Directors of the Company (the “Board”) has unanimously (i) approved and adopted the Acquisition Agreement and the Divestiture Agreement and the transactions contemplated thereby, including the Acquisition and the Divestiture, (ii) declared advisable the Acquisition Agreement and the Divestiture Agreement and the transactions contemplated thereby, including the Acquisition and the Divestiture, and (iii) recommended that our stockholders, voting together as a single class, vote “FOR” the approval of the Stock Issuance Proposal, the Divestiture Proposal, the Compensation Proposal and the Adjournment Proposal. When you consider the Board’s recommendation, you should keep in mind that certain executive officers and non-employee directors of the Company have interests in the Acquisition and the Divestiture that may conflict with your interests as a stockholder. Please see the sections titled “Proposal 1: The Stock Issuance Proposal — The Acquisition — Interests of Certain Persons in the Acquisition” and “Proposal 2: The Divestiture Proposal — The Divestiture — Interests of Certain Persons in the Divestiture” for additional information.

Enclosed are the notice of the Special Meeting and proxy statement, which describe the business that will be acted upon at the Special Meeting.

YOUR VOTE IS VERY IMPORTANT, REGARDLESS OF THE NUMBER OF SHARES OF COMMON STOCK YOU OWN. To vote your shares of common stock, please refer to the instructions included on the enclosed proxy card. If your shares are held in the name of a broker, trust, bank or other nominee and you receive these materials through such intermediary, please complete and return the materials in accordance with the instructions provided to you by your broker, trust, bank or other nominee or contact your broker, trust, bank or other nominee directly in order to obtain a proxy issued to you by your intermediary to vote your shares. Failure to do so may result in your stock not being eligible to be voted by proxy at the Special Meeting. On behalf of the Board, I urge you to follow the instructions provided to you and vote your shares today, even if you plan to attend the virtual meeting.

Thank you for your support of Paltalk, Inc. I look forward to speaking with you at the Special Meeting.

NEITHER THE U.S. SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES REGULATORY AGENCY HAS APPROVED OR DISAPPROVED THE TRANSACTIONS DESCRIBED HEREIN, PASSED UPON THE MERITS OR FAIRNESS OF THE TRANSACTIONS DESCRIBED HEREIN OR PASSED UPON THE ADEQUACY OR ACCURACY OF THE DISCLOSURE IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY CONSTITUTES A CRIMINAL OFFENSE.

The accompanying proxy statement is dated November 26, 2024 and is expected to be first mailed to the Company’s stockholders on or about November 26, 2024.

PALTALK, INC.
30 Jericho Executive Plaza, Suite 400E
Jericho, New York 11753
(212) 967-5120

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To Be Held on December 30, 2024

NOTICE IS HEREBY GIVEN that a special meeting of stockholders (the “Special Meeting”) of Paltalk, Inc., a Delaware corporation (the “Company”), will be held on December 30, 2024 at 9:00 a.m., Eastern Time, by means of a live audio webcast for the following purposes:

(1)    Stock Issuance Proposal — To consider and vote upon a proposal to approve, for purposes of complying with the applicable provisions of Nasdaq Listing Rule 5635, the issuance of up to 9,000,000 shares of a newly created series of preferred stock, the Series A Non-Voting Common Equivalent Stock of the Company, par value $0.001 per share (the “Preferred Stock”), in connection with the acquisition by the Company of Newtek Technology Solutions, Inc. (“NTS”), and pursuant to that certain Agreement and Plan of Merger, dated as of August 11, 2024, by and among the Company, PALT Merger Sub 1, Inc., PALT Merger Sub 2, LLC, NewtekOne, Inc. and NTS;

(2)    Divestiture Proposal — To consider and vote upon a proposal to approve the sale of the Company’s telecommunications services provider, “Vumber”, as well as its “Paltalk” and “Camfrog” applications and certain assets related to such services provider and applications pursuant to that certain Asset Purchase Agreement, dated November 7, 2024, by and among the Company, certain of the Company’s subsidiaries party thereto and Meteor Mobile Holdings, Inc., which may be deemed to be a sale of substantially all of the Company’s assets under Section 271 of the Delaware General Corporation Law, as amended;

(3)    Compensation Proposal — To approve, on a non-binding, advisory basis, certain compensation that may be paid or become payable to the Company’s named executive officers in connection with the Acquisition and the Divestiture; and

(4)    Adjournment Proposal — To consider and vote upon a proposal to adjourn the Special Meeting to a later date or dates, if necessary, to permit further solicitation and vote of proxies if there are insufficient votes for, or otherwise in connection with, the approval of the Stock Issuance Proposal and the Divestiture Proposal. This proposal will only be presented at the Special Meeting if there are not sufficient votes to approve either of the Stock Issuance Proposal or the Divestiture Proposal.

Stockholders will also transact any other business that may properly come before the Special Meeting or any adjournment(s), postponement(s) or recess(es) thereof.

Stockholders are referred to the proxy statement accompanying this notice for more detailed information with respect to the matters to be considered at the Special Meeting. After careful consideration, the Board of Directors of the Company (the “Board”) has determined that each proposal listed above is in the best interests of the Company and its stockholders and has approved each proposal. The Board recommends that you vote “FOR” each of the proposals at the Special Meeting.

The Board has fixed 5:00 p.m., Eastern Time, on November 13, 2024 as the record date for the Special Meeting (the “Record Date”). Only holders of record of shares of the Company’s common stock on the Record Date are entitled to receive notice of the Special Meeting and to vote at the Special Meeting or at any postponement(s), adjournment(s) or recess(es) of the Special Meeting. A complete list of registered stockholders entitled to vote at the Special Meeting will be available for inspection at the headquarters of the Company during regular business hours for a period of 10 calendar days ending on the day before the Special Meeting. If you would like to review the list, please contact our Investor Relations department by emailing IR@paltalk.com.

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR
THE STOCKHOLDER MEETING TO BE HELD ON DECEMBER 30, 2024:

A copy of the Notice of Special Meeting of the Stockholders, the Proxy Statement and Proxy Voting Card are available at:

https://www.astproxyportal.com/ast/24835/special

TABLE OF CONTENTS

30 Jericho Executive Plaza, Suite 400E
Jericho, New York 11753
(212) 967-5120

_______________________

PROXY STATEMENT
FOR
SPECIAL MEETING OF STOCKHOLDERS

To Be Held December 30, 2024

_______________________

The accompanying proxy is solicited by the Board of Directors (the “Board”) on behalf of Paltalk, Inc., a Delaware corporation (the “Company”), to be voted at the Special Meeting of Stockholders of the Company (the “Special Meeting”) to be held on December 30, 2024, at the time and place and for the purposes set forth in the accompanying Notice of Special Meeting of Stockholders (the “Notice”) and at any adjournment(s), postponement(s) or recess(es) of the Special Meeting. This proxy statement (this “Proxy Statement”) and accompanying form of proxy are expected to be first sent or given to stockholders on or about November 26, 2024.

The executive offices of the Company are located at, and the mailing address of the Company is, 30 Jericho Executive Plaza, Suite 400E, Jericho, New York 11753. Unless the context otherwise indicates, references to “Paltalk,” “we,” “our,” “us” and the “Company” refer to Paltalk, Inc. and its subsidiaries on a consolidated basis.

_______________________

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR
THE STOCKHOLDER MEETING TO BE HELD ON DECEMBER 30, 2024:

A copy of the Notice, this Proxy Statement and the Proxy Voting Card are available at:

https://www.astproxyportal.com/ast/24835/special

SUMMARY TERM SHEET

This summary term sheet, together with the section titled “Questions and Answers About the Special Meeting,” summarizes certain information contained in this Proxy Statement, but may not contain all of the information that may be important to you. You should carefully read this entire Proxy Statement, including the attached Annexes, and the other documents to which this Proxy Statement refers you for a more complete understanding of the matters to be considered at the Special Meeting. This Proxy Statement also incorporates by reference important business and financial information about the Company. You may obtain the information incorporated by reference in this Proxy Statement without charge by following the instructions in the section titled “Where You Can Find Additional Information; Incorporation of Certain Documents by Reference.”

•        Paltalk, Inc., a Delaware corporation, which we refer to, either individually or together with its subsidiaries, as the context requires, as “we,” “us,” “our” or the “Company,” is a communications software innovator that powers multimedia social applications. We operate a network of consumer applications that we believe create a unique social media enterprise where users can meet, see, chat, broadcast, play online card games and board games and message in real time in a secure environment with others in our network. Our consumer applications generate revenue principally from subscription fees and advertising arrangements. For more information about the Company, please see the section titled “Information About the Company.”

•        As of November 13, 2024, the record date for the Special Meeting, there were 9,236,987 shares of the Company’s common stock issued and outstanding, excluding shares held by the Company as treasury stock, and there were no shares of the Company’s preferred stock issued and outstanding.

•        Newtek Technology Solutions, Inc. (“NTS”), a New York corporation, is a wholly owned subsidiary of NewtekOne, Inc., a Maryland corporation (“Newtek”), that provides dedicated server hosting, cloud hosting, data storage, managed security, backup and disaster recovery and other related services, including consulting and technology solution implementation services for enterprise and commercial clients across the United States. NTS’s management team has expertise and experience leveraging a broad range of technology solutions and services that enable businesses to operate more efficiently and securely. For more information about NTS, please see the sections titled “Information About NTS” and “NTS Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

•        On August 11, 2024 (the “Execution Date”), the Company entered into an Agreement and Plan of Merger (as it may be amended from time to time in accordance with the terms thereof, the “Acquisition Agreement”), by and among the Company, PALT Merger Sub 1, Inc., a New York corporation and a direct and wholly owned subsidiary of the Company (“First Merger Sub”), PALT Merger Sub 2, LLC, a Delaware limited liability company and a direct and wholly owned subsidiary of the Company (“Second Merger Sub”), NTS and Newtek, pursuant to which (i) First Merger Sub will merge with and into NTS, with NTS continuing as the interim surviving entity (the “Interim Surviving Entity” and such merger, the “First Step Merger”), and (ii) immediately following the consummation of the First Step Merger, the Interim Surviving Entity will merge with and into Second Merger Sub, with Second Merger Sub continuing as the surviving entity (such transactions collectively, the “Acquisition”).

•        Pursuant to the Acquisition Agreement, the Company agreed to (i) pay Newtek an amount in cash equal to $4,000,000 (the “Acquisition Closing Cash Consideration”), and (ii) issue to Newtek 4,000,000 shares of a newly created series of the Company’s preferred stock, the Series A Non-Voting Common Equivalent Stock (the “Preferred Stock” and such shares issued at the closing of the Acquisition, the “Acquisition Closing Stock Consideration” and together with the Closing Cash Consideration, the “Acquisition Closing Consideration”) (in each case, subject to adjustment as further described in this Proxy Statement).

•        In addition to the Acquisition Closing Consideration, the Acquisition Agreement provides that Newtek is entitled to receive up to $5,000,000 (the “Acquisition Earn-Out Amount”) based on the Company’s achievement of certain cumulative average Adjusted EBITDA thresholds for the 2025 and 2026 fiscal years. The Acquisition Earn-Out Amount may be paid, at the Company’s sole discretion (subject to certain exceptions), in cash (the “Acquisition Earn-Out Cash Consideration”), in shares of Preferred Stock (the “Acquisition Earn-Out Stock Consideration”) or in a combination thereof. The issuance of the Acquisition Closing Stock Consideration, the Acquisition Earn-Out Stock Consideration (if any) and the shares of Company common stock issuable upon conversion of the Preferred Stock (the “Conversion Shares”) is referred to herein as the “Stock Issuance”.

•        Following the consummation of the Acquisition and the issuance to Newtek of the Acquisition Closing Stock Consideration, Newtek would own 30.2% of the Company’s common or common-equivalent equity (on an as-converted and fully-diluted basis), calculated based on the number of shares of the Company’s common stock outstanding as of November 13, 2024. As a holder of Preferred Stock, Newtek generally will not have voting rights, except with respect to certain protective matters, such as amendments to the Company’s Amended and Restated Certificate of Incorporation, as amended (the “Charter”), or the Certificate of Designations designating the Preferred Stock (the “Certificate of Designations”) that significantly and adversely affect the preferences, rights, privileges or powers of the Preferred Stock. The Preferred Stock is convertible into common stock only upon certain qualifying transfers to third parties, as further described in this Proxy Statement.

•        Pursuant to the Acquisition Agreement, if the issuance of the Acquisition Closing Stock Consideration or the Acquisition Earn-Out Stock Consideration would cause Newtek’s “total equity” (as calculated under the Bank Holding Company Act of 1956, as amended (the “BHCA”), and as implemented and interpreted by the Federal Reserve) in the Company to exceed one-third of the Company’s total equity (the “Total Equity Cap”), then the number of shares of Preferred Stock issuable as Closing Stock Consideration and/or Earn-Out Stock Consideration, as applicable, will be adjusted so that we will issue Newtek the maximum number of shares of Preferred Stock that would not cause Newtek’s total equity to exceed the Total Equity Cap, with a corresponding increase to the Acquisition Closing Cash Consideration or the Acquisition Earn-Out Cash Consideration, as applicable.

•        Following the closing of the Acquisition, the Company plans to change its name from “Paltalk, Inc.” to “Intelligent Protection Management Corp.,” and change its ticker symbol on The Nasdaq Capital Market to “IPM”.

•        On November 7, 2024, the Company entered into an Asset Purchase Agreement (as it may be amended from time to time in accordance with the terms thereof, the “Divestiture Agreement”), by and among the Company, its wholly owned subsidiaries Paltalk Holdings, Inc. (“Paltalk Holdings”), Paltalk Software, Inc. (“Paltalk Software”), Camshare, Inc. (“Camshare”), A.V.M. Software, Inc. (“AVM”) and Vumber, LLC (“Vumber” and, collectively with the Company, Paltalk Holdings, Paltalk Software, Camshare, and AVM, the “Paltalk Parties,” and each individually, a “Paltalk Party”), and Meteor Mobile Holdings, Inc., a Delaware corporation (“Meteor Mobile”), pursuant to which the Company will sell to Meteor Mobile the Company’s telecommunications services provider, “Vumber”, as well as its “Paltalk” and “Camfrog” applications and certain assets and liabilities related to such services provider and applications (the “Divestiture”). Following the Divestiture, the Company will no longer be engaged in the business of providing video-based, live streaming, virtual camera and telecommunications software to consumers, as and to the extent such businesses are currently conducted by the Company pursuant to the “Vumber,” “Paltalk” and “Camfrog” applications (the “Business”).

•        Pursuant to the Divestiture Agreement, Meteor Mobile agreed to (i) acquire certain assets of the Paltalk Parties relating to the “Vumber,” “Paltalk” and “Camfrog” applications, including, among other things, the Paltalk Parties’ intellectual property and technology, the rights of the Paltalk Parties under certain contracts, all rights to any actions of any nature available to or being pursued by Paltalk Party to the extent related to the Business, the Transferred Assets (as defined below) or the assumed liabilities, whether arising by way of counterclaim or otherwise, other than any such action to the extent related to certain excluded assets or excluded liabilities, all of the Paltalk Parties’ rights under warranties, indemnities and all similar rights against third parties to the extent related to any Transferred Assets, all rights to insurance proceeds to the extent received or receivable in respect of the Business, the Transferred Assets or the assumed liabilities, all documents that are related to the Business, and all goodwill and the going concern value of the Business, other than certain excluded assets (collectively, the “Transferred Assets”) and (ii) assume all of the liabilities of the Paltalk Parties arising out of or relating to the Business or the Transferred Assets other than certain excluded liabilities (the “Assumed Liabilities”), in each case upon the terms and subject to the conditions set forth in the Divestiture Agreement, for aggregate consideration of $1.35 million (the “Divestiture Closing Consideration”), to be paid by Meteor Mobile to the Company in cash on the closing date of the Divestiture.

•        In addition to the Divestiture Closing Consideration, the Divestiture Agreement provides that the Company is entitled to receive cash earn-out payments during a three and one-half year earn-out period beginning on July 1, 2025, based upon a percentage of revenue achieved by Meteor Mobile from the Transferred Assets during such period.

•        Following the closing of the Divestiture and subject to the limited rights to be granted pursuant to Meteor Mobile pursuant to the Divestiture Agreement, the Company will retain all patents and patent applications and any rights or causes of action related to such patents and patent applications (including the Company’s previously disclosed patent litigation against Cisco Systems, Inc.). The Company will also retain any assets (including intellectual property) that are not used exclusively in the operation of the Business.

•        The Company’s management and the Board considered various factors in determining whether to approve and adopt the Acquisition Agreement and the Divestiture Agreement and the transactions contemplated thereby, including the Acquisition and the Divestiture. The Board’s reasons for approving the Acquisition and the Divestiture are described in the sections titled “Proposal 1: The Stock Issuance Proposal — The Acquisition — The Board’s Reasons for Approving the Acquisition and the Related Stock Issuance” and “Proposal 2: The Divestiture Proposal — The Divestiture — The Board’s Reasons for Approving the Divestiture,” respectively.

•        At the Special Meeting, the stockholders of the Company will be asked to consider and vote upon a proposal to approve, for purposes of complying with the applicable provisions of Nasdaq Listing Rule 5635, the Stock Issuance (the “Stock Issuance Proposal”) and a proposal to approve the sale of the Transferred Assets in connection with the Divestiture, which may be deemed to be a sale of substantially all of the Company’s assets under Section 271 of the DGCL (the “Divestiture Proposal”). For more information about the Stock Issuance Proposal and the Divestiture Proposal, please see the sections titled “Proposal 1: The Stock Issuance Proposal” and “Proposal 2: The Divestiture Proposal,” respectively. In addition to voting on the Stock Issuance Proposal and the Divestiture Proposal at the Special Meeting, the stockholders of the Company will be asked to vote on a proposal to approve, on a non-binding, advisory basis, certain compensation that may be paid or become payable to the Company’s named executive officers in connection with the Acquisition and the Divestiture (the “Compensation Proposal”) and a proposal to adjourn the Special Meeting to a later date or dates, if necessary, to permit further solicitation and vote of proxies in the event that there are insufficient votes for, or otherwise in connection with, the approval of either of the Stock Issuance Proposal or the Divestiture Proposal (the “Adjournment Proposal”). For more information about the Compensation Proposal and the Adjournment Proposal, please see the sections titled “Proposal 3: Non-Binding, Advisory Vote on Transaction-Related Named Executive Officer Compensation” and “Proposal 4: The Adjournment Proposal,” respectively. The Acquisition is conditioned on, among other things, the approval of the Stock Issuance Proposal and the Divestiture Proposal at the Special Meeting. The Compensation Proposal and the Adjournment Proposal are not conditioned on the approval of any other proposal set forth in this Proxy Statement.

•        The closings of the Acquisition and the Divestiture are each subject to the satisfaction or waiver of a number of conditions set forth in the Acquisition Agreement and the Divestiture Agreement, as applicable, including, among others, (i) the absence of any governmental order enjoining or otherwise prohibiting the performance of the Acquisition Agreement, the Divestiture Agreement or any of the transactions contemplated thereby, (ii) in the case of the Acquisition Agreement, receipt by Newtek from the Board of Governors of the Federal Reserve System (the “Federal Reserve”) of regulatory approval or a non-objection notice relating to the Acquisition and the transactions related thereto, (iii) in the case of the Acquisition Agreement, receipt of stockholder approval of the Stock Issuance Proposal and the Divestiture Proposal as contemplated by this Proxy Statement and (iv) in the case of the Acquisition Agreement, the consummation of the Divestiture. For more information about the closing conditions to the Acquisition and the Divestiture, please see the sections titled “Proposal 1: The Stock Issuance Proposal — Conditions to Closing of the Acquisition” and “Proposal 2: The Divestiture Proposal — Conditions to Closing of the Divestiture,” respectively.

•        The Acquisition Agreement may be terminated at any time prior to the consummation of the Acquisition upon agreement of the parties thereto, or by the Company or Newtek, on behalf of itself and NTS, in specified circumstances. For more information about the termination rights under the Acquisition Agreement, please see the section titled “Proposal 1: The Stock Issuance Proposal — The Acquisition Agreement — Termination.”

•        The Divestiture Agreement may be terminated at any time prior to the consummation of the Divestiture upon agreement of the parties thereto, or by the Company or Meteor Mobile, in specified circumstances. For more information about the termination rights under the Divestiture Agreement, please see the section titled “Proposal 2: The Divestiture Proposal — The Divestiture Agreement — Termination.”

•        The proposed Acquisition and Divestiture involve numerous risks. For more information about these risks, please see the section titled “Risk Factors.”

•        In considering the recommendation of the Board to vote for the proposals presented at the Special Meeting, including the Stock Issuance Proposal and the Divestiture Proposal, you should be aware that certain of the Company’s executive officers and non-employee directors have interests in the Acquisition and the Divestiture that are different from, or in addition to, the interests of the Company’s stockholders generally. The Board was aware of and considered these interests, among other matters, in evaluating the Acquisition and the Divestiture before recommending to the Company’s stockholders that they vote in favor of the proposals presented at the Special Meeting. Stockholders should take these interests into account in deciding whether to approve the proposals presented at the Special Meeting. These interests include, among other things, that, the Divestiture, which is a condition to closing the Acquisition, will constitute a “Change in Control” under the terms of the Paltalk, Inc. 2016 Long-Term Incentive Plan (the “2016 Plan”). As a result, the vesting of shares underlying the stock options held by certain of the Company’s employees, including Adam Zalko, the Company’s Senior Vice President, and certain of the Company’s non-employee directors will accelerate upon completion of the Divestiture. Additionally, the Board has approved one-time cash bonus payments to Kara Jenny, the Company’s Chief Financial Officer, and Mr. Zalko and the award of stock options to Jason Katz, the Company’s Chief Executive Officer, Ms. Jenny and Mr. Zalko, in each case subject to the closing of the Acquisition. For a description of our named executive officers’ compensation arrangements in connection with the Acquisition and the Divestiture, see “Proposal 1: The Stock Issuance Proposal — Interests of Certain Persons in the Acquisition” and “Proposal 2: The Divestiture Proposal — The Divestiture — Quantification of Potential Payments and Benefits to our Named Executive Officers,” respectively.

•        In addition, in connection with the Company’s entry into the Acquisition Agreement, on August 11, 2024, the Company and Newtek entered into voting and support agreements with certain stockholders, executive officers and current and former directors of the Company (each, a “Paltalk Holder”), who collectively represent approximately 42.8% of the issued and outstanding shares of Company common stock as of November 13, 2024, whereby each Paltalk Holder, in such Paltalk Holder’s capacity as a beneficial owner of the Company’s common stock (and, as applicable, not in such Paltalk Holder’s capacity as a director or officer of the Company), agreed to, among other things, vote or cause to be voted all common stock beneficially owned by such Paltalk Holder in favor of the Stock Issuance Proposal, the Divestiture Proposal and the Adjournment Proposal and against alternative transactions.

QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING

What is a proxy?

A proxy is another person that you legally designate to vote your stock. If you designate someone as your proxy in a written document, that document is also called a “proxy” or a “proxy card.” If you are a “street name” holder, you must obtain a proxy from your broker, trust, bank or other nominee in order to vote your stock at the Special Meeting.

What is a proxy statement?

A proxy statement is a document that the regulations of the Securities and Exchange Commission (the “SEC”) require that we give to you when we ask you to sign a proxy card to vote your stock at the Special Meeting.

What is the purpose of the Special Meeting?

At our Special Meeting, stockholders will act upon the following matters outlined in the Notice:

(1)    to approve, for purposes of complying with Nasdaq Listing Rule 5635, the issuance of up to 9,000,000 shares of Preferred Stock in connection with the Acquisition;

(2)    to approve the Divestiture, which may be deemed to be a sale of substantially all of our assets under Section 271 of the DGCL;

(3)    to approve, on a non-binding, advisory basis, certain compensation that may be paid or become payable to our named executive officers in connection with the Acquisition and the Divestiture;

(4)    to adjourn the Special Meeting to a later date or dates, if necessary, to permit further solicitation and vote of proxies if there are insufficient votes for, or otherwise in connection with, the approval of the Stock Issuance Proposal or the Divestiture Proposal; and

(5)    to transact any other business that may properly come before the Special Meeting or any adjournment, postponement or recess thereof.

What is the Acquisition?

On August 11, 2024, we entered into the Acquisition Agreement with First Merger Sub, Second Merger Sub, NTS and Newtek, pursuant to which, through a two-step merger process, we will acquire NTS. NTS provides dedicated server hosting, cloud hosting, data storage, managed security, backup and disaster recovery and other related services, including consulting and technology solution implementation services for enterprise and commercial clients across the United States. For more information about NTS, please see the sections titled “Information About NTS” and “NTS Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

A copy of the Acquisition Agreement is attached to this Proxy Statement as Annex A. You should read this Proxy Statement and its Annexes carefully and in their entirety.

What is the consideration for the Acquisition?

As consideration for the Acquisition, we agreed to (i) pay Newtek an amount in cash equal to $4,000,000, which is subject to customary purchase price adjustments as set forth in the Acquisition Agreement, including a working capital adjustment, and (ii) issue to Newtek 4,000,000 shares of Preferred Stock. Additionally, the Acquisition Agreement provides that Newtek is entitled to receive up to $5,000,000 based on our achievement of certain cumulative average Adjusted EBITDA thresholds for the 2025 and 2026 fiscal years, which may be paid, at our sole discretion (subject to certain exceptions), in cash, in shares of Preferred Stock or in a combination thereof.

Why is the Company seeking stockholder approval of the Stock Issuance Proposal?

Nasdaq Listing Rule 5635(a) requires stockholder approval with respect to issuances of common stock, including securities convertible into common stock, among other instances, when the shares to be issued are being issued in connection with the acquisition of the stock or assets of another company and are equal to 20% or more of the outstanding shares of common stock of the issuer before the issuance. Nasdaq Listing Rule 5635(b) requires

stockholder approval when any issuance or potential issuance of securities will result in a “change of control” of the issuer. Although Nasdaq has not adopted any formal rule on what constitutes a “change of control” for purposes of Nasdaq Listing Rule 5635(b), Nasdaq has previously indicated that the acquisition of, or right to acquire, by a single investor or affiliated investor group, as little as 20% of the outstanding common stock or voting power of an issuer could constitute a change of control. Accordingly, we are asking our stockholders to approve, for purposes of complying with the applicable provisions of Nasdaq Listing Rule 5635, the issuance of up to 9,000,000 shares of Preferred Stock in connection with the Acquisition.

In addition, approval of the Stock Issuance Proposal is a closing condition under the Acquisition Agreement. If the Stock Issuance Proposal is not approved, either the Company or Newtek may terminate the Acquisition Agreement and the Acquisition may not be completed, which may have an adverse effect on our business and financial condition.

How has the announcement of the Acquisition and the Divestiture affected the trading price of the Company’s common stock?

On August 9, 2024, the trading date immediately prior to the public announcement of the Acquisition, the closing price of our common stock on The Nasdaq Capital Market was $4.02. On November 7, 2024, the trading date immediately prior to the public announcement of the Divestiture, the closing price of our common stock on The Nasdaq Capital Market was $1.98. On November 21, 2024, the closing price of our common stock on The Nasdaq Capital Market was $1.78.

What equity stake will Newtek have in the Company immediately following the Acquisition?

Following the consummation of the Acquisition and the issuance of the Closing Stock Consideration, Newtek will own 30.2% of the Company’s 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 the Company’s common stock outstanding as of November 13, 2024. As a holder of Preferred Stock, Newtek generally will not have voting rights, except with respect to certain protective matters, such as amendments to the Charter or the Certificate of Designations that significantly and adversely affect the preferences, rights, privileges or powers of the Preferred Stock. The Preferred Stock is convertible into common stock only upon certain qualifying transfers to third parties, as further described in this Proxy Statement.

Pursuant to the Acquisition Agreement, if the issuance of the Acquisition Closing Stock Consideration or the Acquisition Earn-Out Stock Consideration would cause Newtek’s “total equity” (as calculated under the BHCA, and as implemented and interpreted by the Federal Reserve) in the Company to exceed one-third of the Company’s total equity, then the number of shares of Preferred Stock issuable as Acquisition Closing Stock Consideration and/or Acquisition Earn-Out Stock Consideration, as applicable, will be adjusted so that we will issue Newtek the maximum number of shares of Preferred Stock that would not cause Newtek’s total equity to exceed the Total Equity Cap, with a corresponding increase to the Acquisition Closing Cash Consideration or the Acquisition Earn-Out Cash Consideration, as applicable.

Will the management and the Board change as a result of the Acquisition?

Pursuant to the Acquisition Agreement, we have agreed to cause one representative nominated by Newtek to be appointed to the Board. Additionally, in connection with and conditioned on the closing of the Acquisition, we have agreed to enter into an employment agreement with Jared Mills, who currently serves as the President of NTS. Following the Acquisition, it is anticipated that Mr. Mills will serve as our President and Adam Zalko will transition from the role of Senior Vice President to Chief Operating Officer of the Company. Jason Katz will remain our Chief Executive Officer and Chairman of the Board and Kara Jenny will remain our Chief Financial Officer.

What conditions must be satisfied to complete the Acquisition?

The consummation of the Acquisition is subject to the satisfaction or waiver of a number of conditions, including, among others, (i) approval of the Stock Issuance Proposal, (ii) approval of the Divestiture Proposal, (iii) the absence of any governmental order enjoining or otherwise prohibiting the performance of the Acquisition Agreement or any of the transactions contemplated thereby, (iv) the absence of a material adverse effect (as such term is used in the Acquisition Agreement), (v) receipt by Newtek from the Federal Reserve of a regulatory approval or non-objection notice relating to the Acquisition and the transactions related thereto, and (vi) the completion of the Divestiture.

These closing conditions may not be fulfilled in a timely manner or at all, and, accordingly, the Acquisition may not be consummated. For a summary of the conditions that must be satisfied or waived prior to completion of the Acquisition, see the section of this Proxy Statement titled “Proposal 1: The Stock Issuance Proposal — Conditions to Closing the Acquisition.”

What happens if the Acquisition is not consummated?

If the Acquisition is not consummated, the Company would not acquire NTS, would retain the businesses subject to the Divestiture and would seek to explore acquisitions of businesses in the technology sector.

The Acquisition Agreement contains certain termination rights for both the Company and Newtek, on behalf of itself and NTS, including, among other things, if the closing of the Acquisition has not occurred prior to February 9, 2025. In the event the Acquisition Agreement is terminated, none of the parties thereto will owe a termination fee to any other party under or relating to the Acquisition Agreement. For more information regarding the parties’ specific termination rights, see the section of this Proxy Statement titled “Proposal 1: The Stock Issuance Proposal — The Acquisition Agreement — Termination”.

What is the Divestiture?

On November 7, 2024, we and the other Paltalk Parties entered into the Divestiture Agreement with Meteor Mobile, pursuant to which we agreed to sell the Transferred Assets to Meteor Mobile. A copy of the Divestiture Agreement is attached to this Proxy Statement as Annex B. You should read this Proxy Statement and its Annexes carefully and in their entirety.

Why is the Company seeking stockholder approval of the Divestiture Proposal?

Section 271 of the DGCL requires that a Delaware corporation obtain the approval of the holders of a majority of the corporation’s outstanding stock entitled to vote for the sale of all or substantially all of its property and assets. We are seeking the approval of the Divestiture by our stockholders in the event that the Divestiture is deemed to be a sale of substantially all of the assets of the Company under Section 271 of the DGCL.

In addition, approval of the Divestiture Proposal is a closing condition under the Acquisition Agreement. If the Divestiture Proposal is not approved, either the Company or Newtek may terminate the Acquisition Agreement and the Acquisition cannot be completed. The failure to consummate either the Acquisition or the Divestiture may have an adverse effect on our business and financial condition.

How would the proceeds from the Divestiture be used?

We intend to utilize the proceeds from the Divestiture for working capital and general corporate purposes. Our stockholders will not receive any proceeds from the Divestiture.

What conditions must be satisfied to complete the Divestiture?

The consummation of the Divestiture is subject to a number of conditions, including, among others, (i) the absence of any governmental order enjoining or otherwise prohibiting the performance of the Divestiture Agreement or the consummation of any of the transactions contemplated thereby, (ii) the absence of a material adverse effect (as such term is used in the Divestiture Agreement) and (iii) the satisfaction of all conditions to closing required to be satisfied in connection with Acquisition Agreement and the parties to the Acquisition Agreement standing ready, willing and able to close the Acquisition, subject only to the closing of the transactions contemplated by the Divestiture Agreement. These closing conditions may not be fulfilled in a timely manner or at all, and, accordingly, the Divestiture may not be consummated. For a summary of the conditions that must be satisfied or waived prior to completion of the Divestiture, see the section of this Proxy Statement titled “Proposal 2: The Divesture Proposal — Conditions to the Closing the Divestiture.”

What will happen to my shares of common stock in connection with the Acquisition and Divestiture?

Neither the Acquisition nor the Divestiture will have any direct effect on your ownership of your shares of our common stock. If you hold your shares of common stock following the consummation of the Acquisition and Divestiture, you will continue to hold the same number of shares with the same rights and privileges as your shares presently issued and outstanding.

What interests do our current executive officers and non-employee directors have in the Acquisition and Divestiture?

Certain of our executive officers and non-employee directors have interests in the Acquisition and the Divestiture that are different from, or in addition to, the interests of our stockholders generally. The Board was aware of and considered these interests, among other matters, in evaluating the Acquisition and the Divesture and before recommending to our stockholders that they vote in favor of the Stock Issuance Proposal and the Divestiture Proposal at the Special Meeting. Stockholders should take these interests into account in deciding whether to approve the Stock Issuance Proposal and the Divestiture Proposal. For more information on interests of our executive officers and non-employee directors in the Acquisition and the Divesture, see the sections of this Proxy Statement titled “Proposal 1: The Stock Issuance Proposal — Interests of Certain Persons in the Acquisition” and “Proposal 2: The Divesture Proposal — Interests of Certain Persons in the Divestiture,” respectively.

Are there any risks associated with the Acquisition and the Divestiture?

Yes. You should carefully review the section of this Proxy Statement titled “Risk Factors” beginning on page 17, which presents risks and uncertainties related to, among other things, the Acquisition, the Divestiture and the operations of the Company following the completion of the Acquisition and the Divestiture.

When does the Company anticipate closing the Acquisition and the Divestiture?

Assuming receipt of stockholder approval of the Stock Issuance Proposal and the Divestiture Proposal at the Special Meeting, we expect to consummate the Acquisition and the Divestiture in the first quarter of 2025, but we cannot be certain when or if the conditions to the Acquisition and the Divestiture will be satisfied or, to the extent permitted, waived. Neither the Acquisition nor the Divestiture can be completed until the conditions set forth in the Acquisition Agreement and the Divestiture Agreement, respectively, are satisfied (or, to the extent permitted, waived).

What is “householding” and how does it affect me?

With respect to eligible stockholders who share a single address, SEC rules allow us to send only one proxy statement to that address, unless we received instructions to the contrary from any stockholder at that address. This practice, known as “householding,” is designed to reduce our printing and postage costs. However, if a stockholder of record residing at such address wishes to receive a separate proxy statement in the future, he or she may contact us at Paltalk, Inc., 30 Jericho Executive Plaza, Suite 400E, Jericho, New York 11753, Attn: Investor Relations or by calling (212) 967-5120 or emailing IR@paltalk.com. Eligible stockholders of record receiving multiple copies of our Proxy Statement can request householding by contacting us in the same manner. Stockholders who own shares through a broker, trust, bank or other nominee can request householding by contacting such nominee.

We hereby undertake to deliver promptly, upon written or oral request, a copy of the Proxy Statement to a stockholder at a shared address to which a single copy of the document was delivered. Requests should be directed to Investor Relations at the address, phone number or email set forth above.

SEC rules permit companies to send you a notice that proxy information is available on the Internet, instead of mailing you a complete set of materials. In the future, we may choose to distribute proxy information in this manner.

What should I do if I receive more than one set of voting materials?

You may receive more than one set of voting materials, including multiple copies of this Proxy Statement and multiple proxy cards or voting instruction cards. For example, if you hold your common stock in more than one brokerage account, you will receive a separate voting instruction card for each brokerage account in which you hold stock. Similarly, if you are a stockholder of record and hold stock in a brokerage account, you will receive a proxy card

for stock held in your name and a voting instruction card for stock held in “street name.” See “What is the difference between a stockholder of record and a ‘street name’ holder?” below for more information. Please complete, sign, date and return each proxy card and voting instruction card that you receive to ensure that all your stock is voted.

Why have a virtual meeting?

We have determined to embrace the latest technology to provide expanded access, improved communication and cost savings for our stockholders and the Company. Hosting a virtual meeting enables increased stockholder attendance and participation since stockholders can participate from any location around the world.

What do I need to do to attend the virtual Special Meeting?

We will be hosting the Special Meeting online via an audio webcast.

Record Holders:    If you were a stockholder of record as of the close of business on November 13, 2024 (i.e., you held your shares in your own name as reflected in the records of our transfer agent, Equiniti Trust Company, LLC (f/k/a American Stock Transfer & Trust Company, LLC) (“Equiniti”), you can attend the Special Meeting by accessing https://web.lumiconnect.com/207490181 and selecting the button “I have a Control Number.” You will then be directed to a screen where you will enter: (i) the 11-digit control number on the proxy card; and (ii) the meeting password “paltalk2024”. Please note the meeting password is case sensitive. Once you have completed these steps, select the “login” button, which will take you to the Special Meeting page where you can vote, submit written questions and listen to the meeting. If you are a stockholder of record and misplaced your 11-digit control number, please call Equiniti at 800-937-5449.

Beneficial Owners:    If you were a beneficial owner as of the close of business on November 13, 2024 (i.e., you hold your shares in “street name” through an intermediary, such as a broker, trust, bank or other nominee), you must register in advance to attend the Special Meeting. To register, please obtain a legal proxy from the broker, trust, bank or other nominee that is the record holder of your shares and then submit the legal proxy, along with your name and email address, to Equiniti to receive an 11-digit control number that may be used to access the Special Meeting site provided above. Any control number that was provided with your proxy materials, likely a 16-digit number, will not provide access to the Special Meeting site. Requests for registration and submission of legal proxies should be labeled as “Legal Proxy” and must be received by Equiniti no later than 5 p.m., Eastern Time, on December 29, 2024. All such requests should be submitted (i) by email to proxy@equiniti.com or (ii) by mail to Equiniti Trust Company, LLC, Attn: Proxy Department, 55 Challenger Road, 2nd Floor, Ridgefield Park, NJ 07660. Obtaining a legal proxy may take several days, and stockholders are advised to register as far in advance as possible. Once you have obtained your 11-digit control number from Equiniti, please follow the steps set forth above for “Record Holders” to attend the Special Meeting.

A summary of the information you need to attend the Special Meeting online is provided below:

•        Any stockholder can attend the Special Meeting by visiting https://web.lumiconnect.com/207490181 and following the instructions on your proxy card (or the instructions provided to you by Equiniti).

•        We encourage you to access the Special Meeting online prior to its start time.

•        The Special Meeting starts at 9:00 a.m., Eastern Time.

•        Stockholders may vote electronically while attending the Special Meeting.

•        Please have the control number printed on your proxy card we have provided to you (or the control number that was provided to you by Equinity) to join the Special Meeting.

What is the record date and what does it mean?

The record date determines the stockholders that are entitled to notice of, and to vote at, the Special Meeting. The record date for the Special Meeting is 5:00 p.m., Eastern Time, on November 13, 2024 (the “Record Date”). The Record Date was established by the Board as required by Delaware law. As of the Record Date, 9,236,987 shares of our common stock, excluding shares held by us as treasury stock, were issued and outstanding.

Who is entitled to vote at the Special Meeting?

Only the holders of common stock at 5:00 p.m., Eastern Time, on the Record Date may vote at the Special Meeting.

What are the voting rights of the stockholders?

Each holder of common stock is entitled to one vote per share of common stock on all matters to be acted upon at the Special Meeting. Neither our Charter, nor our Amended and Restated Bylaws (the “Bylaws”) allow for cumulative voting rights.

The presence, in person or by proxy, of the holders of a majority of the issued and outstanding shares of common stock entitled to vote at the Special Meeting is necessary to constitute a quorum to transact business at the Special Meeting. If a quorum is not present or represented by proxy at the Special Meeting, the stockholders present in person or by proxy and entitled to vote at the Special Meeting may adjourn or recess the Special Meeting from time to time until a quorum is present or represented by proxy, but no business may be transacted at any adjourned meeting except which could have been lawfully transacted had the meeting not been adjourned. Pursuant to our Bylaws, for the purposes of this virtual Special Meeting, presence “in person” is satisfied by being present online during the live audio webcast at https://web.lumiconnect.com/207490181.

What is the difference between a stockholder of record and a “street name” holder?

If your stock is registered directly in your name with Equiniti, the Company’s transfer agent, you are considered the stockholder of record with respect to that stock. The Proxy Statement and proxy card have been sent directly to you by the Company’s transfer agent.

If your stock is held in a stock brokerage account or by a trust, bank or other nominee, such nominee is considered the record holder of that stock. You are considered the beneficial owner of that stock, and your stock is held in “street name.” The Proxy Statement has been forwarded to you by your nominee. As the beneficial owner, you have the right to direct your nominee concerning how to vote your stock by using the voting instructions it included in the mailing or by following its instructions for voting.

What is a broker non-vote?

A “broker non-vote” occurs on a proposal when (i) a broker, trust, bank or other nominee has discretionary authority to vote on one or more proposals to be voted on at a meeting of stockholders, but is not permitted to vote on other proposals without instructions from the beneficial owner of the shares, and (ii) the beneficial owner fails to provide the broker, trust, bank or other nominee with such instructions. Because all of the proposals currently expected to be voted on at the Special Meeting are non-routine matters for which brokers do not have discretionary authority to vote, we do not expect there to be any broker non-votes at the Special Meeting.

How do I vote my stock?

If you are a record holder, you may vote your common stock by following the instructions included on your proxy card. To vote at the Special Meeting, you must attend the Special Meeting online and submit a ballot in accordance with the instructions provided at https://web.lumiconnect.com/207490181. The ballot will be provided online during the Special Meeting. See “What do I need to do to attend the virtual Special Meeting?” above for more information.

If you hold some or all of your stock in “street name,” your broker, trust, bank or other nominee should provide to you a request for voting instructions for the stock together with the Company’s proxy solicitation materials. By completing the voting instruction card, you may direct your nominee how to vote your stock. Alternatively, if you want to vote your stock online at the Special Meeting, you must contact your nominee directly in order to obtain a proxy issued to you by your nominee. Note that a broker letter that identifies you as a stockholder is not the same as a nominee-issued proxy. If you fail to obtain a nominee-issued proxy, you will not be able to vote your nominee-held stock online at the Special Meeting.

Who counts the votes?

All votes will be tabulated by Equiniti, the inspector of election appointed for the Special Meeting, or its substitute. Votes for each proposal will be tabulated separately.

Can I vote my stock online at the Special Meeting?

Yes. If you are a stockholder of record, you may vote your stock at the virtual meeting by completing a ballot online at the Special Meeting at https://web.lumiconnect.com/207490181. See “What do I need to do to attend the virtual Special Meeting?” and “How do I vote my stock?” above for more information.

If you hold your stock in “street name,” you may vote your stock online only if you obtain a proxy issued by your bank, broker or other nominee giving you the right to vote the stock.

Even if you currently plan to attend the Special Meeting online, we recommend that you also vote your shares as soon as possible so that your votes will be counted if you later decide not to attend the Special Meeting or are unable to attend.

What are my choices when voting?

With respect to the proposals to be acted upon at the Special Meeting, you may vote as follows:

•        the Stock Issuance Proposal — “FOR,” “AGAINST” or “ABSTAIN”;

•        the Divestiture Proposal — “FOR,” “AGAINST” or “ABSTAIN”;

•        the Compensation Proposal — “FOR,” “AGAINST” or “ABSTAIN”; and

•        the Adjournment Proposal — “FOR,” “AGAINST” or “ABSTAIN”.

How does the Board recommend that I vote my stock?

The Board recommends that you vote your stock as follows:

•        “FOR” the Stock Issuance Proposal;

•        “FOR” the Divestiture Proposal;

•        “FOR” the Compensation Proposal; and

•        “FOR” the Adjournment Proposal.

What if I do not specify how I want my stock voted on my proxy card?

If you are a record holder who returns a completed proxy card that does not specify how you want to vote your stock with respect to one or more of the proposals, the proxies designated on the proxy card will vote your stock for each proposal as to which you provide no voting instructions in the following manner:

•        “FOR” the Stock Issuance Proposal;

•        “FOR” the Divestiture Proposal;

•        “FOR” the Compensation Proposal; and

•        “FOR” the Adjournment Proposal.

We do not anticipate that any other matters will come before the Special Meeting, but if any other matters properly come before the Special Meeting, then the designated proxies will vote your stock in accordance with applicable law and their judgment.

If you are a “street name” holder and do not provide voting instructions with respect to one or more proposals, your broker, trust, bank or other nominee will be unable to vote your stock with respect to such proposal. See “What is a broker non-vote?” above for more information.

Can I change my vote?

Yes. If you are a record holder, you may revoke your proxy by any of the following means:

•        attending the Special Meeting and voting your stock by ballot online at the Special Meeting;

•        completing and submitting a new valid proxy bearing a later date;

•        voting by telephone or via the Internet as instructed in your proxy card (only your latest telephone or Internet proxy is counted); or

•        giving written notice of revocation to the Company addressed to the Company’s Corporate Secretary at the Company’s address above, which notice must be received before noon, Eastern Time, on December 30, 2024.

If you are a “street name” holder, your broker, trust, bank or other nominee should provide instructions explaining how you may change or revoke your voting instructions.

What percentage of the vote is required to approve each proposal?

Assuming the presence of a quorum, approval of each of the Stock Issuance Proposal, the Compensation Proposal and the Adjournment Proposal requires the affirmative vote, in person or by proxy, of the majority of votes cast for or against such proposals at the Special Meeting. In accordance with the DGCL and the Company’s organizational documents, assuming the presence of a quorum, approval of the Divestiture Proposal requires the affirmative vote of the holders of a majority of the outstanding shares of common stock of the Company entitled to vote on the Divestiture Proposal.

How are abstentions and broker non-votes treated?

Abstentions are included in the determination of the number of shares of common stock present at the Special Meeting for determining a quorum at the meeting. Abstentions will have no effect on the Stock Issuance Proposal, the Compensation Proposal or the Adjournment Proposal. Abstentions will have the same effect as a vote “against” the Divestiture Proposal.

Because all of the proposals currently expected to be voted on at the Special Meeting are non-routine matters, we do not expect there to be any broker non-votes at the Special Meeting.

Do I have any dissenters’ or appraisal rights with respect to any of the matters to be voted on at the Special Meeting?

No. None of our stockholders have any dissenters’ or appraisal rights with respect to the matters to be voted on at the Special Meeting.

What are the solicitation expenses and who pays the cost of this proxy solicitation?

The Board is asking for your proxy, and we will pay all of the costs of asking for stockholder proxies. We will reimburse brokerage houses and other custodians, nominees and fiduciaries for their reasonable out-of-pocket expenses for forwarding solicitation material to the beneficial owners of common stock and collecting voting instructions. We may use officers and employees of the Company to ask for proxies, as described below.

Is this Proxy Statement the only way that proxies may be solicited?

No. In addition to the solicitation of proxies by use of the mail, officers and employees of the Company may solicit the return of proxies, either by mail, telephone, telecopy, e-mail or through personal contact. These officers and employees will not receive additional compensation but will be reimbursed for out-of-pocket expenses. Brokerage houses and other custodians, nominees and fiduciaries, in connection with shares of the common stock registered in their names, will be requested to forward solicitation material to the beneficial owners of shares of common stock.

RISK FACTORS

In addition to the other information contained in this Proxy Statement or incorporated by reference herein, including the matters addressed in the section titled “Cautionary Note Regarding Forward-Looking Statements,” stockholders should carefully consider the following risks relating to the Acquisition, the Divestiture and our Company following the Acquisition and Divestiture before deciding how to vote with respect to the proposals brought before the Special Meeting. You should also read and consider the risks associated with each of our business and the businesses of NTS because many of these risks will also affect the Company following the Acquisition and the Divestiture. The risks associated with our business can be found in “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2023, and may be updated or supplemented in our subsequently filed Quarterly Reports on Form 10-Q. Such risk factors are incorporated by reference into this Proxy Statement. Risks associated with the business of NTS can be found below in the section titled “Risks Relating to NTS.” Stockholders are also urged to carefully consider all of the information included or incorporated by reference in this Proxy Statement, which are listed in the section titled “Where You Can Find Additional Information; Incorporation of Certain Documents by Reference.”

We have grouped the risks into four categories for ease of reading, and without any reflection on the importance of, or likelihood of, any particular category.

Risks Relating to the Acquisition and the Divestiture

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

On August 11, 2024, we entered into the Acquisition Agreement with Newtek and NTS to acquire NTS through a two-step merger process. The consummation of the Acquisition is subject to a number of conditions, including, among others, (i) approval by our stockholders of the Stock Issuance Proposal and the Divestiture Proposal, (ii) the absence of any governmental order enjoining or otherwise prohibiting the performance of the Acquisition Agreement or any of the transactions contemplated thereby, (iii) the absence of a material adverse effect (as such term is used in the Acquisition Agreement) on the Company or NTS, (iv) receipt by Newtek from the Federal Reserve of regulatory approval or a non-objection notice relating to the Acquisition and the transactions related thereto, and (v) the completion of the Divestiture.

These closing conditions may not be satisfied in a timely manner or at all, and, accordingly, the Acquisition may not be consummated. Any delay in completing the Acquisition could cause us not to realize, or to be delayed in realizing, some or all of the benefits that we expect to achieve if the Acquisition is successfully consummated within our expected timeframe. In addition, Newtek and the Company can mutually decide to terminate the Acquisition Agreement at any time, before or after approval of the matters presented to the Company’s stockholders at the Special Meeting. If the Acquisition is not completed for any reason, including as a result of our stockholders declining to approve the Stock Issuance Proposal or the Divestiture Proposal, we would be subject to a number of risks, including the following:

•        the trading price of our common stock may be negatively impacted (including to the extent that current market prices reflect a market assumption that the Acquisition and the Divestiture will be completed);

•        we may experience negative reactions from our users and other third parties with whom we do business, as well as our employees; and

•        we will have incurred substantial expenses and will be required to pay certain costs relating to the Acquisition, whether or not the Acquisition is completed.

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

The announcement and pendency of the Acquisition and the transactions contemplated thereby, including the Divestiture, may adversely affect our business or our relationships with our users, consultants and employees. Third parties may be unwilling to enter into material agreements with respect to our business in light of the proposed transactions. In addition, new or existing customers, suppliers and business partners of NTS may prefer to enter into

agreements with NTS’s competitors who have not expressed an intention to sell their business because customers, suppliers and business partners may perceive that such new relationships are likely to be more stable. Additionally, our employees may become concerned about the future of our business and NTS and lose focus or seek other employment.

If our due diligence investigation of NTS was inadequate, then stockholders of the Company following the consummation of the Acquisition could lose some or all of their investment.

Even though we conducted a due diligence investigation of NTS, we cannot be sure that our diligence efforts uncovered all material issues that may be present inside NTS or its business, or that it would be possible to uncover all material issues through a customary amount of due diligence, or that factors outside of NTS and its business and outside of our control will not later arise. If any material issues arise, such issues may adversely affect our business, results of operations and financial condition.

Our executive officers and non-employee directors may have interests in the Acquisition and the Divestiture that may differ from, or are in addition to, the interests of our stockholders.

Our executive officers and non-employee directors may have interests in the Acquisition and the Divestiture that may be different from, in addition to, or in conflict with, the interests of our stockholders. These interests and arrangements may create potential conflicts of interest. For example, the Divestiture, which is a condition to closing the Acquisition, will constitute a “Change in Control” under the terms of the 2016 Plan. As a result, the vesting of shares underlying the stock options held by Mr. Zalko and certain of our non-employee directors will accelerate upon completion of the Divestiture. Additionally, the Board has approved one-time cash bonus payments to Ms. Jenny and Mr. Zalko and the award of stock options to Mr. Katz, Ms. Jenny and Mr. Zalko, in each case subject to the closing of the Acquisition. For more information, see the sections titled “Proposal 1: The Stock Issuance Proposal — The Acquisition — Interests of Certain Persons in the Acquisition” and “Proposal 2: The Divestiture Proposal — The Divestiture — Interests of Certain Persons in the Divestiture.” The Board was aware of and considered these interests, among other matters, in reaching the determination to approve the terms of the Acquisition Agreement and the Divestiture Agreement and in recommending that our stockholders vote to approve the Stock Issuance Proposal and the Divestiture Proposal.

We have incurred and are expected to continue incurring significant transaction costs in connection with the Acquisition and the Divestiture, which may be in excess of those we anticipated.

We have incurred and are expected to continue to incur significant non-recurring costs associated with consummating the Acquisition and the Divestiture. These costs have been, and will continue to be, substantial. A substantial majority of non-recurring expenses consist of transaction costs and include, among others, fees paid to financial, legal, accounting and other advisors. We have incurred and will continue to incur costs related to formulating and implementing integration plans for NTS, systems consolidation costs and other employment-related costs. We will continue to assess the magnitude of these costs, and additional unanticipated costs may be incurred in connection with the Divestiture and the integration of NTS. While we have assumed that a certain level of expenses would be incurred, there are many factors beyond our control that could affect the total amount or the timing of the expenses. The elimination of duplicative costs, as well as the realization of other efficiencies related to the integration of NTS, may not offset integration-related costs and achieve a net benefit in the near term, or at all. The costs described above and any unanticipated costs and expenses could have an adverse effect on our financial condition and operating results.

Because the Closing Cash Consideration is subject to certain adjustments, we do not have full certainty as to the final Closing Cash Consideration amount that will be paid, and such amount may be materially higher than was anticipated upon the Company’s entry into the Acquisition Agreement.

Pursuant to the Acquisition Agreement, the Closing Cash Consideration to be paid in connection with the Acquisition is subject to certain adjustments, as more fully described in the section titled “Proposal 1: The Stock Issuance Proposal — The Acquisition Agreement — Acquisition Consideration.” Because certain of the individual items forming the adjustments to be made to the Closing Cash Consideration are not knowable with full certainty by us prior to the Acquisition, the final Closing Cash Consideration we pay may be materially higher than the base cash consideration of $4,000,000. If the Closing Cash Consideration is materially higher than expected, the value of the Acquisition to us and our current stockholders may be less than was anticipated upon our entry into the Acquisition Agreement.

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

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

Following the Acquisition and the issuance of the Closing Stock Consideration, the Company’s current stockholders will have a reduced ownership interest in the Company.

Following the consummation of the Acquisition and the issuance of the Closing Stock Consideration, Newtek will own 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 November 13, 2024. As a holder of Preferred Stock, Newtek generally will not have voting rights, except with respect to certain protective matters, such as amendments to the Charter or the Certificate of Designations that significantly and adversely affect the preferences, rights, privileges or powers of the Preferred Stock. The Preferred Stock is convertible into common stock only upon certain qualifying transfers to third parties, as further described in this Proxy Statement. As a result of the Acquisition, the Company’s current stockholders will be diluted, and, as a result, will have a reduced ownership interest in the Company. In addition, the Company may issue additional equity from time to time, which would have the effect of further diluting the ownership of current stockholders.

Risks Relating to the Company Following the Acquisition and the Divestiture

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

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

Following the consummation of the Acquisition and the issuance of the Closing Stock Consideration, Newtek will own 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 November 13, 2024. As a holder of Preferred Stock, Newtek generally will not have voting rights, except with respect to certain protective matters, such as amendments to the Charter or the Certificate of Designations that significantly and adversely affect the preferences, rights, privileges or powers of the Preferred Stock. The Preferred Stock is convertible into common stock only upon certain qualifying transfers to third parties, as further described in this Proxy Statement. In addition, we have agreed to enter into a Registration Rights Agreement with Newtek at the closing of the Acquisition (the “Registration Rights Agreement”), pursuant to which, among other things, we will be obligated to use our reasonable best efforts to prepare and file a registration statement registering the resale the shares of our common stock issuable upon conversion of the Preferred Stock. Once registered, the shares of common stock issuable upon conversion of the Preferred Stock held by Newtek generally will not require further registration under the Securities Act, provided, however, that to the extent that Newtek is deemed to be our affiliate for purposes of the Securities Act, its sales of common stock issuable upon conversion of the Preferred Stock will be subject to the resale restrictions of Rule 144 under the Securities Act.

Pursuant to the Registration Rights Agreement, Newtek will be subject to certain lockup and transfer restrictions with respect to the Preferred Stock for one year following the closing of the Acquisition. Following this lockup period, Newtek may wish to dispose of some or all of its Preferred Stock, and as a result, may seek to sell its shares of Preferred Stock, which would automatically convert into shares of our common stock upon the occurrence of certain qualifying transfers. See the section titled “Proposal 1: The Stock Issuance Proposal — Transaction Documents and Related Agreements — Certificate of Designations — Series A Non-Voting Common Equivalent Stock — Conversion and Transfer.” Any such sale (or the perception that any such a sale may occur), coupled with the increase in the outstanding number of shares of our common stock following the conversion of the Preferred Stock upon transfer, may affect the market for, and the market price of, shares of common stock in an adverse manner.

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

•        our inability to successfully combine our ManyCam product with the business of NTS in a manner that permits us to achieve, on a timely basis or at all, the enhanced revenue opportunities, cost savings and other benefits anticipated to result from the Acquisition;

•        complexities associated with managing our existing business and NTS, including difficulty addressing possible differences in operational philosophies and the challenge of integrating complex systems, technology, networks and other assets of NTS in a seamless manner that minimizes any adverse impact on customers, suppliers, employees and other constituencies;

•        the assumption of contractual obligations with less favorable or more restrictive terms; and

•        potential unknown liabilities and unforeseen increased expenses or delays associated with the transactions.

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 attempting to enter a new line of business which is highly competitive.

Through the Acquisition, we are acquiring 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, bring products and services to market or have enough sales to be profitable, as the case may be. 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. We anticipate that products and services of NTS will be developed for and distributed to the market, but there can be no guaranty that sufficient revenue to support operations will ever be generated. Furthermore, certain of our current employees may have limited experience with dedicated server hosting, cloud hosting, data storage, managed security, backup and disaster recovery and other related services and may have limited experience with respect to any other line of business we may enter into as we seek to expand NTS’s operations.

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

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

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

The unaudited pro forma combined financial information included in this Proxy Statement is presented for illustrative purposes only and does not represent the actual financial position or results of operations of the Company following the completion of the Acquisition and the Divestiture. Our future results may differ, possibly materially, from the unaudited pro forma combined financial information presented in this Proxy Statement.

The unaudited pro forma combined financial statements contained in this Proxy Statement is presented for illustrative purposes only, contains a variety of adjustments, assumptions and preliminary estimates and does not represent the actual financial position or results of operations of the Company or NTS prior to the Acquisition and the Divestiture or that of the Company following the Acquisition and the Divestiture for several reasons. Specifically, the unaudited pro forma combined financial statements do not reflect the effect of any integration costs following the completion of the Acquisition.

For additional information, see the section titled “Unaudited Pro Forma Combined Financial Statements.” In addition, the Acquisition and post-Acquisition integration process may give rise to unexpected liabilities and costs, including costs associated with the defense and resolution of transaction-related litigation or other claims. Unexpected delays in completing the Acquisition or in connection with the post-Acquisition integration process may significantly increase the related costs and expenses we incur. The actual financial positions and results of operations of the Company and NTS prior to the Acquisition and the Divestiture and that of the Company following the Acquisition and Divestiture may be different, possibly materially, from the unaudited pro forma combined financial statements included in this Proxy Statement. In addition, the assumptions used in preparing the unaudited pro forma combined financial statements included in this Proxy Statement may not prove to be accurate and may be affected by other factors.

Newtek previously identified material weaknesses in NTS’s internal controls over financial reporting. If the material weaknesses are not remediated following the Acquisition, 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. Following the Acquisition, we expect to implement remediation measures as part of a comprehensive remediation plan, and will have up to one year from the date of the closing of the Acquisition to provide an assessment of NTS’s internal control over financial reporting. The material weaknesses identified cannot be considered remediated until each control has been appropriately designed, has operated for a sufficient period of time, and until management has concluded, through testing, that the control is operating effectively. A comprehensive remediation plan may not remediate the material weaknesses in internal controls, or additional material weaknesses or significant deficiencies in our internal controls over financial reporting may be identified in the future. A failure by us to timely and effectively remediate such material weaknesses could prevent us from accurately and timely reporting our financial results and could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our common stock.

Following the Acquisition, 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 will account 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 will be 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. For additional information, see the section titled “Unaudited Pro Forma Combined Financial Statements.”

Under the acquisition method of accounting, the total purchase price will be allocated to NTS’s tangible assets and liabilities and identifiable intangible assets based on their fair values as of the date of completion of the Acquisition. The excess of the purchase price over those fair values will be 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.

NTS has historically relied on Newtek for managerial, financial and accounting support and benefitted from Newtek’s referral network.

NTS has historically relied on Newtek for managerial, financial and accounting support to manage NTS’s business. In addition, NTS has materially benefited from Newtek’s referral network, including Newtek’s patented NewTracker® software, to assist NTS in generating new customers and revenues. For example, approximately 40% of new NTS customers have resulted from internal and external referrals from Newtek without material expenditures by NTS for marketing or advertising. We and Newtek anticipate entering into a referral agreement pursuant to which Newtek will continue to refer potential clients to us for a fee. We may not be able to effectively manage the business of NTS without the managerial assistance of Newtek, and the Acquisition may result in the disruption of, or the loss of momentum in, NTS’s 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 has historically performed.

Newtek has historically accounted for a material portion of NTS’s revenue and income.

Newtek has also historically been 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 Agreement, NTS will enter into master services agreements with Newtek and Newtek Bank, National Association (“Newtek Bank”), pursuant to which NTS will continue to provide Newtek and Newtek Bank with the same level of managed IT services at the same or similar billing rates as of the close of the Acquisition. See the section titled “Proposal 1: The Stock Issuance Proposal — Transaction Documents and Related Agreements — Master Services Agreement.” If NTS is 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.

Risks Relating to NTS

NTS operates in a highly competitive industry in which technological change can be rapid.

The information technology business and its related technology involve a broad range of rapidly changing technologies. NTS equipment and the technologies on which it is based may not remain competitive over time, and others may develop superior technologies that render its products non-competitive, without significant additional capital expenditures. Some of NTS’s competitors are significantly larger and have substantially greater market presence, as well as greater financial, technical, operational, marketing and other resources and experience than NTS. In the event that such a competitor expends significant sales and marketing resources in one or several markets in which NTS operates, NTS may not be able to compete successfully in such markets. We believe that competition will continue to increase, placing downward pressure on prices. Such pressure could adversely affect NTS’s gross margins if it is not able to reduce its costs commensurate with such price reductions.

NTS relies on a limited number of customers for a material portion of its revenues and income.

During fiscal year ending 2023 and during fiscal 2024, NTS has relied on a limited number of customers for a material portion of its revenues. During 2024, NTS’s second largest customer informed NTS it would cease utilizing the Company’s services due to a consolidation of its vendors. While this customer has since resumed utilizing NTS’s services, NTS cannot be certain at what level, or for what period, the customer relationship will continue. A loss of one or more of NTS’s customers, if not replaced, could adversely impact the NTS’s financial condition and prospects.

NTS’s technology solutions business depends on the efficient and uninterrupted operation of its computer and communications hardware systems and infrastructure.

Despite precautions taken by NTS against possible failure of its systems, interruptions could result from natural disasters, power loss, the inability to acquire fuel for its backup generators, telecommunications failure, terrorist attacks and similar events. NTS also leases telecommunications lines from local, regional and national carriers whose service may be interrupted. NTS’s business, financial condition and results of operations could be harmed by any damage or failure that interrupts or delays its operations. NTS’s insurance may not cover all of the losses or compensate NTS for the possible loss of clients occurring during any period that NTS is unable to provide service.

NTS’s inability to maintain the integrity of its infrastructure and the privacy of confidential information would materially affect its business.

The NTS infrastructure is potentially vulnerable to physical or electronic break-ins, viruses or similar problems. If its security measures are circumvented, such breaches could jeopardize the security of confidential information stored on NTS’s systems, misappropriate proprietary information or cause interruptions in NTS’s operations. NTS may be required to make significant additional investments and efforts to protect against or remedy security breaches. Security breaches that result in access to confidential information could damage NTS’s reputation and expose NTS to a risk of loss or liability. The security services that NTS offers in connection with customers’ networks cannot assure complete protection from computer viruses, break-ins and other disruptive problems. The occurrence of these problems may result in claims against NTS. These claims, regardless of their ultimate outcome, could result in costly litigation and could harm NTS’s business and reputation and impair NTS’s ability to attract and retain customers.

NTS could be adversely affected by information security breaches or cyber security attacks.

NTS’s web and cloud services involve the storage and transmission of its customers’ and employees’ proprietary information. NTS’s business relies on its digital technologies, computer and email systems, software and networks to conduct its operations. NTS’s technologies, systems and networks may become the target of criminal cyber-attacks or information security breaches that could result in the unauthorized release, gathering, monitoring, misuse, loss or destruction of confidential, proprietary and other information of NTS or third parties with whom NTS deals, or otherwise disrupt NTS’s or its customers’ or other third parties’ business operations. It is critical to NTS’s business strategy that its facilities and infrastructure remain secure and are perceived by the marketplace to be secure. Although NTS believes it employs appropriate security technologies, NTS cannot guarantee that the security technologies (including data encryption processes, intrusion detection systems) it employs, the comprehensive risk assessments it conducts or its other internal control procedures will ensure the security of its customers’ data. If NTS’s security measures are breached as a result of third-party action, employee error or otherwise, and as a result, its customers’ data becomes available to unauthorized parties, NTS could incur liability and its reputation would be damaged, which could lead to the loss of current and potential customers.

In addition, NTS will be required to expend significant capital and other resources to detect, remedy, protect against or alleviate breaches of its network and security, and it may not be able to remedy these problems in a timely manner, or at all. Because techniques used by outsiders to obtain unauthorized network access or to sabotage systems change frequently and generally are not recognized until launched against a target, NTS may be unable to anticipate these techniques or implement adequate preventative measures. 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. Further, any breaches to NTS’s security measures as a result of third-party action, employee error or otherwise could increase the cost of cybersecurity insurance, which, in turn, could adversely affect NTS’s financial condition and results of operations.

NTS’s business depends on Microsoft Corporation and others for the licenses to use software and other intellectual property in the managed technology solutions business.

NTS’s managed technology business is built on technological platforms relying on the Microsoft Windows® products and other intellectual property that NTS currently licenses. As a result, if NTS is unable to continue to have the benefit of those licensing arrangements or if the products upon which its platform is built become obsolete, its business could be materially and adversely affected.

Risks Relating to the Company’s Business

You should read and consider risk factors specific to the Company’s businesses, certain of which will also affect the Company following the consummation of the Acquisition and the Divestiture. These risks are described in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023 and subsequent Quarterly Reports on Form 10-Q, which are incorporated by reference herein. For the location of information incorporated by reference in this Proxy Statement, see the section titled “Where You Can Find Additional Information; Incorporation of Certain Documents by Reference.”

PROPOSAL 1: THE STOCK ISSUANCE PROPOSAL

Overview

At the closing of the Acquisition, we will acquire NTS through a two-step merger process. As consideration for the Acquisition, we agreed to (i) pay Newtek an amount in cash equal to $4,000,000, (ii) issue to Newtek 4,000,000 shares of Preferred Stock and (iii) pay Newtek up to $5,000,000 in potential earn-out payments, payable in cash, shares of Preferred Stock or a combination thereof (in each case, subject to adjustment as described below).

The terms of the Acquisition Agreement are complex and only briefly summarized below. For further information, please see the full text of the Acquisition Agreement, which is attached as Annex A hereto.

Nasdaq Listing Rule 5635(a) requires stockholder approval with respect to issuances of common stock, including securities convertible into common stock, among other instances, when the shares to be issued are being issued in connection with the acquisition of the stock or assets of another company and are equal to 20% or more of the outstanding shares of common stock before the issuance. Nasdaq Listing Rule 5635(b) requires stockholder approval when any issuance or potential issuance of securities will result in a “change of control” of the issuer. Although Nasdaq has not adopted any rule on what constitutes a “change of control” for purposes of Nasdaq Listing Rule 5635(b), Nasdaq has previously indicated that the acquisition of, or right to acquire, by a single investor or affiliated investor group, as little as 20% of the outstanding common stock or voting power of an issuer could constitute a change of control. Accordingly, we are asking our stockholders to approve, for purposes of complying with the applicable provisions of Nasdaq Listing Rule 5635, the issuance of up to 9,000,000 shares of Preferred Stock in connection with the Acquisition, which is comprised of 4,000,000 shares of Preferred Stock to be issued to Newtek as Acquisition Closing Stock Consideration and up to 5,000,000 shares of Preferred Stock that could potentially be issued to Newtek as Acquisition Earn-Out Stock Consideration.

We may consummate the Acquisition only if the Stock Issuance Proposal is approved by the affirmative vote, in person or by proxy, of the majority of votes cast for or against the Stock Issuance Proposal at the Special Meeting, assuming a quorum is present.

The Acquisition Agreement

This subsection of this Proxy Statement describes the material provisions of the Acquisition Agreement but does not purport to describe all of the terms of the Acquisition Agreement. The following summary is qualified in its entirety by reference to the complete text of the Acquisition Agreement, which is attached as Annex A hereto. You are urged to read the Acquisition Agreement in its entirety because it is the primary legal document that governs the Acquisition.

The Acquisition Agreement contains representations, warranties and covenants that the respective parties made to each other as of the date of the Acquisition Agreement or other specific dates. The assertions embodied in those representations, warranties and covenants were made for purposes of the contract among the respective parties and are subject to important qualifications and limitations agreed to by the parties in connection with negotiating the Acquisition Agreement. The representations, warranties and covenants in the Acquisition Agreement are also modified in important part by the underlying disclosure schedules, which are not filed publicly, are subject to a contractual standard of materiality different from that generally applicable to stockholders and were used for the purpose of allocating risk among the parties rather than establishing matters as facts.

General Description of the Acquisition and the Acquisition Agreement

On August 11, 2024 (the “Execution Date”), we entered into the Acquisition Agreement with First Merger Sub, Second Meger Sub, NTS and Newtek to acquire NTS through a two-step merger process. Pursuant to the Acquisition Agreement, following and the satisfaction or waiver of the conditions to closing set forth therein: (i) NTS will merge with and into First Merger Sub, with NTS continuing as the interim surviving entity, and (ii) immediately following the consummation of the First Step Merger, NTS will merge with and into Second Merger Sub, with Second Merger Sub continuing as the surviving entity (the “Surviving Entity”).

NTS is a wholly owned subsidiary of Newtek that provides dedicated server hosting, cloud hosting, data storage, managed security, backup and disaster recovery and other related services, including consulting and technology solution implementation services for enterprise and commercial clients across the United States. NTS’s management

team has expertise and experience leveraging a broad range of technology solutions and services that enable businesses to operate more efficiently and securely. For more information about NTS and its business, see the section titled “Information About NTS”.

Acquisition Consideration

At the closing of the Acquisition, pursuant to and subject to the terms and conditions of the Acquisition Agreement, we will (i) pay Newtek an amount in cash equal to $4,000,000, (ii) issue to Newtek 4,000,000 shares of Preferred Stock and (iii) pay Newtek up to $5,000,000 in potential earn-out payments, payable in cash, shares of Preferred Stock or a combination thereof (in each case, subject to adjustment as discussed below).

The Acquisition Closing Cash Consideration

The Acquisition Closing Cash Consideration to be paid as partial consideration for the Acquisition is subject to certain adjustments. The Acquisition Closing Cash Consideration is equal to (i) $4,000,000, (ii) minus the Working Capital Deficit (if any), (iii) plus the Working Capital Excess (if any), (iv) minus the Closing Indebtedness, (v) minus the Transaction Expenses and (vi) plus the Closing Cash.

Prior to the closing of the Acquisition, prongs (ii) through (vi) above will be calculated in accordance with the terms of the Acquisition Agreement in a closing statement to be prepared and delivered by NTS to the Company. Following the closing of the Acquisition, prongs (ii) through (vi) above (the “Final Adjustment Amount”) will be calculated in accordance with the terms of the Acquisition Agreement in a post-closing statement to be prepared and delivered by the Company to Newtek. Each of the closing statement and the post-closing statement are subject to customary review and agreement rights of both the Company and NTS (or Newtek with respect to the post-closing statement). Further, the post-closing statement is subject to the review of, and determination by, an independent accounting or consulting firm in the event that the Company and Newtek cannot reach an agreement as to certain items thereon.

If the Final Adjustment Amount exceeds the purchase price set forth in the pre-closing statement, then the Company will pay Newtek an amount in cash equal to the difference between the purchase price set forth in the pre-closing statement and the Final Adjustment Amount. If the purchase price set forth in the pre-closing statement exceeds the Final Adjustment Amount, then Newtek will pay the Company an amount in cash equal to the difference between the purchase price set forth in the pre-closing statement and the Final Adjustment Amount.

For purposes of the above calculations:

“Working Capital” means as of 12:01 Eastern Time on the closing date of the Acquisition, (i) the aggregate current assets (excluding cash and deferred and current tax assets) of NTS, minus (ii) the aggregate current liabilities (excluding (a) indebtedness, (b) closing transaction expenses, and (c) deferred and current tax liabilities, in the case of (a) and (b), to the extent taken into account as a reduction to the purchase price) of NTS, in each case, determined in accordance with GAAP and not including any changes in assets or liabilities as a result of purchase accounting adjustments or other changes arising from or resulting as a consequence of the transactions contemplated by the Acquisition Agreement.

“Working Capital Excess” means the amount, if any, by which the Working Capital is greater than the Target Working Capital.

“Working Capital Deficit” means the amount, if any, by which the Working Capital is less than the Target Working Capital.

“Target Working Capital” means an amount equal to $400,000.

“Closing Indebtedness” means the aggregate amount of outstanding and unpaid indebtedness of NTS, subject to certain exceptions, at the closing of the Acquisition.

“Transaction Expenses” means any fees, costs and expenses incurred or subject to reimbursement by NTS, whether accrued for or not, related to (i) any amounts incurred or to be paid by or on behalf of NTS for investment banking fees, accounting fees, legal fees, lien releases and terminations and any other third-party fees, costs, expenses and liabilities related to or arising out of the preparation, negotiation, execution, delivery or performance of the Acquisition Agreement or the Transaction Documents (as defined in the Acquisition Agreement), or

the consummation of the transactions contemplated thereby, (ii) the full amount of any single-trigger bonus, retention, severance, termination, change in control or similar-type payments or benefits triggered solely by the consummation of the transactions contemplated by the Acquisition Agreement and the Transaction Documents, including the employer portion of any payroll or employment taxes payable in connection therewith, and (iii) 50% of the premiums under the R&W Insurance Policy (as defined below).

“Closing Cash” means the amount of unrestricted cash and cash equivalents of NTS, subject to certain exceptions, at the closing of the Acquisition.

The Acquisition Closing Cash Consideration is also subject to increase based on the amount of Acquisition Closing Stock Consideration issued to Newtek at the closing of the Acquisition (as further described below).

The Acquisition Closing Stock Consideration

In addition to the Acquisition Closing Cash Consideration described above, upon completion of the Acquisition, we will issue 4,000,000 shares of Preferred Stock to Newtek, and Newtek will own 30.2% of the Company’s 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 the Company’s common stock outstanding as of November 13, 2024. As a holder of Preferred Stock, Newtek generally will not have voting rights, except with respect to certain protective matters, such as amendments to the Charter or the Certificate of Designations that significantly and adversely affect the preferences, rights, privileges or powers of the Preferred Stock. Upon the occurrence of certain qualifying transfers by Newtek, each transferred share of Preferred Stock will automatically convert into one share of our common stock (subject to certain customary anti-dilution adjustments).

The preferences, conversion or other rights, voting powers, restrictions, limitations, qualifications and terms and conditions of the Preferred Stock are more fully set forth in the Certificate of Designations. For more information about the Preferred Stock and the Certificate of Designations, see the section titled “Transaction Documents and Related Agreements — Certificate of Designations — Series A Non-Voting Common Equivalent Stock” below.

The Acquisition Earn-Out Amount

In addition to the Acquisition Closing Cash Consideration and the Acquisition Closing Stock Consideration, the Acquisition Agreement provides that Newtek is entitled to receive up to $5,000,000 based on the Company’s achievement of certain cumulative average Adjusted EBITDA thresholds for the 2025 and 2026 fiscal years. The Acquisition Earn-Out Amount may be paid, at the Company’s sole discretion (subject to certain exceptions), in cash, in shares of Preferred Stock or in a combination thereof. Pursuant to the Acquisition Agreement, to the extent that all or a portion of the Acquisition Earn-Out Amount is paid in shares of Preferred Stock, the number of shares of Preferred Stock to be issued to Newtek will be calculated based on the average of the daily volume weighted average prices during each trading day during a 60 calendar day period ending on December 31, 2026; provided, however, that in no event shall such price be less than $1.00. As a result, the maximum number of shares of Preferred Stock issuable to Newtek as Acquisition Earn-Out Stock Consideration is 5,000,000 shares.

The Total Equity Cap

Notwithstanding the foregoing and pursuant to the Acquisition Agreement, if the issuance of the Acquisition Closing Stock Consideration or the Acquisition Earn-Out Stock Consideration would cause Newtek’s “total equity” (as calculated under the BHCA and as implemented and interpreted by the Federal Reserve) in the Company to exceed one-third of the Company’s total equity (the “Total Equity Cap”), then the number of shares of Preferred Stock issuable as Acquisition Closing Stock Consideration and/or Acquisition Earn-Out Stock Consideration, as applicable, will be adjusted so that we will issue to Newtek the maximum number of shares of Preferred Stock that would not cause Newtek’s total equity to exceed the Total Equity Cap, with a corresponding increase to the Acquisition Closing Cash Consideration or the Acquisition Earn-Out Cash Consideration, as applicable.

Material Adverse Effect

Under the Acquisition Agreement, certain representations and warranties of the parties are qualified in whole or in part by a material adverse effect standard for purposes of determining whether a breach of such representations and warranties has occurred. Pursuant to the Acquisition Agreement, a “material adverse effect” means, with respect to

NTS or the Company, as applicable, any change, event, circumstance or effect (each, an “Effect”) that, individually or taken together with all other Effects, and regardless of whether or not such Effect constitutes a breach of the representations or warranties made by Newtek, NTS, the Company, First Merger Sub or Second Merger Sub, as applicable, in the Acquisition Agreement, (x) is, or would reasonably be expected to become, individually or in the aggregate, materially adverse in relation to the assets, liabilities, financial condition or results of operations of NTS, the Company, First Merger Sub or Second Merger Sub, as applicable, or (y) prevents or materially impairs or delays, or would reasonably be expected to prevent or materially impair or delay, the ability of the a party to consummate the transactions contemplated by the Acquisition Agreement; provided, that the following Effects shall not be taken into account (except, with respect to (a) below, to the extent they disproportionately impact NTS, the Company, First Merger Sub or Second Merger Sub, as applicable, as compared to other participants in the industry in which NTS, the Company, First Merger Sub or Second Merger Sub, as applicable, operates): (a) any Effect resulting from (i) changes in the general worldwide or U.S. financial, securities and currency markets, changes in prevailing interest rates or exchange rates or changes in general worldwide or U.S. economic, regulatory or political conditions, (ii) acts of war (whether or not declared) sabotage, natural disasters or terrorism or other events or changes that generally affect the participants in the industry in which NTS, the Company, First Merger Sub or Second Merger Sub, as applicable, operates, or (iii) changes in laws or GAAP, (b) Effects attributable to the consummation of the transactions contemplated in the Acquisition Agreement or the announcement of the execution of the Acquisition Agreement, including any actions taken by or losses of employees or customers (provided, that clause (b) shall not apply to representations and warranties that address the consequences arising out of the execution or performance of the Acquisition Agreement or the consummation of the transactions contemplated thereby (including for purposes of Section 8.2(a) of the Acquisition Agreement), (c) strikes, slowdowns or work stoppages, (d) the failure by NTS, the Company, First Merger Sub or Second Merger Sub, as applicable, to meet any internal estimates, expectations, forecasts, projections or budgets for any period (provided that clause (d) shall not prevent a determination that any Effect underlying such failure to meet any internal estimates, expectations, forecasts, projections or budgets has resulted or would reasonably be likely to result, in a material adverse effect), (e) any action taken (or omitted to be taken) at the written request of a party, and (f) any Effect that results from any actions required to be taken or not taken pursuant to the express terms of the Acquisition Agreement (other than Section 7.1 or Section 7.27 thereof).

Closing of the Acquisition

The closing of the Acquisition is expected to take place at the offices of Haynes and Boone, LLP (“Haynes and Boone”), 2801 N. Harwood Street, Suite 2300, Dallas, Texas 75201 at 10:00 a.m. Eastern Time (or at such other place as us and Newtek may agree in writing), on the date that is two business days after the satisfaction or waiver of the last of the conditions described below under the subsection “— Conditions to Closing of the Acquisition” (other than conditions that by their nature are to be satisfied at the closing, but subject to the satisfaction or waiver of those conditions at such time).

Representations and Warranties

Under the Acquisition Agreement, NTS made customary representations and warranties relating to, among other things, organization and good standing, authority, enforceability, non-contravention, consents and approvals, capitalization, subsidiaries, compliance with laws, real property, title to and sufficiency of assets, financial statements, absence of certain changes, environmental matters, material contracts, proceedings and orders, permits, taxes, employee benefits, labor matters, affiliate transactions, insurance, intellectual property and data privacy, customers and suppliers, accounts receivable, the Coronavirus Aid, Relief, and Economic Security Act, also known as the CARES Act, and COVID Relief Programs, bank accounts, brokers, anti-takeover statutes and disclaimer of other representations. Under the Acquisition Agreement, Newtek made customary representations and warranties relating to, among other things, authority, enforceability, non-contravention, consents and approvals, ownership and transfer of NTS common stock, litigation, brokers, investment intent, the Investment Company Act of 1940, as amended (the “Investment Company Act”), and disclaimer of other representations.

Under the Acquisition Agreement, the Company made customary representations and warranties relating to, among other things, organization and good standing, authority and enforceability, non-contravention, consents and approvals, capitalization, subsidiaries, taxes, SEC reports, listing of the Company’s common stock, proceedings and orders, compliance with laws, absence of certain changes, material contracts, affiliate transactions, permits, insurance, intellectual property and data privacy, Board approval, private placement, brokers, the Investment Company Act, labor matters, anti-takeover statutes, formation of merger subsidiaries and disclaimer of other representations.

In conjunction with the entry into the Acquisition Agreement, the Company entered into a binder agreement for a representation and warranty insurance policy (the “R&W Insurance Policy”), which will be bound by BlueChip Underwriting Services LLC and the other excess insurers at the closing of the Acquisition. The R&W Insurance Policy is subject to a limit of liability of $3,000,000 in the aggregate, a retention amount of $150,000 in the aggregate for all claims except for certain exclusions, deductibles and other terms and conditions set forth therein.

Covenants of the Parties

Covenants of Newtek and NTS

Newtek and NTS, as applicable, made certain covenants under the Acquisition Agreement, including, among others, the covenants set forth below:

•        from the Execution Date through the closing of the Acquisition, except as expressly required by law, permitted by the Acquisition Agreement, or as otherwise approved with the prior written consent of the Company, Newtek and NTS agreed to use their reasonable best efforts to conduct the business of NTS in all material respects in the ordinary course of business consistent with past practices and to use their reasonable best efforts to maintain and preserve intact the current organization, material assets, permits and relationships and goodwill of key employees, customers, suppliers and others having material business relationships with NTS;

•        except as otherwise expressly required or permitted by the Acquisition Agreement and except for certain scheduled exceptions, without the prior written consent of the Company, NTS agreed to not, among other actions:

•        (i) split, combine or reclassify any of the equity or voting interests of NTS, or issue any other securities in respect of, in lieu of, or in substitution for, shares of the capital stock or other equity or voting interests of NTS or (ii) purchase, redeem or otherwise acquire any securities of NTS or any securities convertible into or exchangeable for such securities or any options, warrants, calls or rights to acquire any such shares or other securities;

•        transfer, offer, issue, deliver, grant, sell, pledge, dispose of or otherwise encumber any shares of the equity or voting interests of NTS or any securities convertible into, or exchangeable for, or any options, warrants, calls or rights to acquire or receive, any such interests, or securities or any stock appreciation rights, phantom stock awards or any other similar rights that are linked in any way to the price of NTS’s common stock or the value of NTS or any part thereof;

•        acquire by merger or consolidation, or by purchasing all or a substantial portion of the assets of, or by purchasing all or a substantial equity or voting interest in, or by any other manner, all or a substantial portion of any business or any entity or division thereof of any person;

•        acquire any equity interest in any person or any assets or a license therefor, other than acquisitions of assets that are used or held for use in the ordinary course of business consistent with past practice or in order to maintain NTS’s material personal property in good working order;

•        amend the organizational documents of NTS (other than ministerial amendments to such organizational documents);

•        make or commit to make any capital expenditure or series of related capital expenditures in excess of $250,000 individually or in excess of $500,000 in the aggregate;

•        sell or otherwise dispose of any of its material properties or assets, other than (i) the sales and dispositions of inventory and products in the ordinary course of business consistent with past practice, (ii) licenses or other rights with respect to intellectual property rights granted in the ordinary course of business consistent with past practice and (iii) lapse, abandonment or other cancellation of any Registered Company Owned Intellectual Property (as defined in the Acquisition Agreement) at the end of its statutory term;

•        amend, restate, or supplement (in each case, in any material way) or waive any material rights under, terminate, or abandon, certain material contracts or permit or otherwise enter into or extend any contract that would be considered a material contract;

•        take any action which would knowingly adversely affect the ability of the parties to the Acquisition Agreement to consummate the transactions contemplated by the Acquisition Agreement; or

•        agree to do any of the foregoing;

•        Newtek and NTS agreed to afford to the Company and its affiliates and its and their employees, accountants, counsel, financial advisors and other representatives, reasonable access to, during normal business hours upon reasonable notice throughout the period prior to the closing, and the right to inspect, NTS’s respective properties and facilities, books, assets, financial information (including working papers and data in the possession of NTS), contracts and records of NTS and, during such period, to furnish promptly such information concerning the businesses, properties and personnel of NTS as the Company reasonably requests;

•        Newtek agreed that, unless the Acquisition Agreement is terminated pursuant to the terms thereof, subject to certain exceptions, it will not, and that it will cause its affiliates, stockholders, partners, managers, members, directors, officers, agents and representatives not to, at any time after the Execution Date, directly or indirectly, without the prior written consent of the Company, disclose or use certain confidential information of, involving or relating to NTS, other than in the performance of such person’s duties as an employee or agent of, or otherwise on behalf of, NTS, the Company, Newtek or any of their respective affiliates;

•        NTS agreed to use its commercially reasonable efforts to obtain at the earliest practicable date all consents, waivers and approvals from, and provide all notices to, all non-governmental persons required to consummate, or in connection with, the transactions contemplated by the Acquisition Agreement; and

•        Newtek agreed to furnish to the Company, as soon as practically possible after the Execution Date, true and complete copies of the audited consolidated balance sheets of NTS as of December 31, 2022 and December 31, 2023, and the related audited consolidated statements of operations, comprehensive loss, cash flows and changes in equity for the fiscal years then ended, together with all related notes thereto, accompanied by the report thereon of Grassi & Co., CPAs, P.C., and to make available to the Company any quarterly unaudited balance sheets and statements of operations, comprehensive loss, cash flows and changes in equity of NTS, on a consolidated basis prepared from the books and records of NTS in accordance with GAAP applied on a consistent basis throughout the periods covered thereby (except as otherwise stated in the footnotes related thereto).

Covenants of the Company

The Company made certain covenants under the Acquisition Agreement, including, among others, the covenants set forth below:

•        except as otherwise expressly required or permitted by the Acquisition Agreement or the terms of the Divestiture and except for certain scheduled exceptions, without the prior written consent of Newtek, the Company agreed to not, among other actions:

•        except (x) as required pursuant to the terms of the 2016 Plan or any individual award agreements thereunder, or (y) as required pursuant to the terms of the Company’s executive employment agreements, (A) declare, set aside, or pay any dividends on, or make any other distributions (whether in cash, stock, or property) in respect of, any of the equity or voting interests of the Company, (B) split, combine, or reclassify any of the equity or voting interests of the Company, or issue any other securities in respect of, in lieu of, or in substitution for shares of the capital stock or other equity or voting interests of the Company, or (C) purchase, redeem, or otherwise acquire any securities of the Company or any securities convertible into or exchangeable for such securities or any options, warrants, calls, or rights to acquire any such shares or other securities;

•        authorize, recommend, propose, enter into, adopt a plan or announce an intention to adopt a plan of complete or partial liquidation or dissolution, merger, consolidation, restructuring, recapitalization or other reorganization of the Company;

•        amend the organizational documents of the Company, First Merger Sub or Second Merger Sub (other than (i) ministerial changes or (ii) the proposal and adoption of the Certificate of Designations);

•        take any action which would knowingly adversely affect the ability of the parties to consummate the transactions contemplated by the Acquisition Agreement;

•        acquire, by merger, consolidation, acquisition of stock or assets, or otherwise, any business or person or division thereof or make any loans, advances, or capital contributions to or investments in any person, in each case that would reasonably be expected to prevent, impede, or materially delay the consummation of the transactions contemplated by the Acquisition Agreement; or

•        agree or commit to do any of the foregoing.

•        the Company agreed to use its commercially reasonable efforts to obtain at the earliest practical date all consents, waivers, approvals, orders, permits, authorizations and declarations from, make all filings with, and provide all notices to, all governmental bodies which are required to consummate, or in connection with, the transactions contemplated by the Acquisition Agreement;

•        the Company agreed to use its commercially reasonable efforts to maintain the listing (subject to official notice of issuance) of its common stock on The Nasdaq Capital Market;

•        the Company agreed to take all action necessary in accordance with applicable laws and the organizational documents of the Company to duly give notice of, convene and hold the Special Meeting, to solicit from its stockholders proxies in favor of the Stock Issuance and the Divestiture (the “Company Stockholder Approval”) and to, within 45 days of the later of the (i) Execution Date (ii) delivery of NTS’s audited financial statements, and (iii) execution of any definitive agreement with respect to the Divestiture, prepare and file with the SEC in connection with the transactions contemplated the Acquisition Agreement, a preliminary proxy statement relating to the meeting of the Company’s stockholders to be held for the purposes of obtaining the Company Stockholder Approval; and

•        subject to any restrictions under applicable law, the Company agreed to honor conversions of the Preferred Stock and deliver Conversion Shares in accordance with the terms, conditions and time periods set forth in the Transaction Documents and the Certificate of Designations.

Use of Names

Under the Acquisition Agreement, the Company will receive a non-exclusive, royalty-free, worldwide, and non-sublicensable license to use the names “Newtek”, “NTS,” “Newtek Technology Solutions” and “Newtek Technology Services,” and any and all other registered trademarks owned by Newtek, including “Newtek Web Hosting,” “The IT Authority,” “Cloud Authority,” “Newtek File Vault,” “Newtek Hosting” and “Insured Cloud Computing” (the “Licensed Marks”) for six months after the closing of the Acquisition Agreement (the “Transitional Period”). Permitted use under such license will not extend to the name “NewtekOne”. The Company agreed to cause NTS to cease all use of the Licensed Marks prior to the expiration of the Transitional Period. The Company also agreed to, and to cause NTS to, (i) ensure that all products and services provided in connection with the Licensed Marks during the Transitional Period meet the standards and level of quality with respect to which Newtek and NTS used the Licensed Marks prior to the closing of the Acquisition Agreement, (ii) conduct the business and use the Licensed Marks in a manner that does not degrade standards of quality applicable to the Company Marks immediately prior to the closing, and (iii) promptly after the closing, cease any use of the name “NewtekOne” in connection with the business.

Bank Holding Company Act and Other Regulatory Matters

Regarding the BHCA, the parties made certain covenants under the Acquisition Agreement, including, among others:

•        the Company agreed to not take any action that would cause Newtek’s total aggregate ownership percentage of Voting Securities and Nonvoting Securities (in each case, as defined in the Acquisition Agreement) of the Company to exceed 4.9% of any class of voting securities of the Company or the Total Equity Cap, in each case as calculated under the BHCA, without the prior written consent of Newtek;

•        during the period from the Execution Date until the closing of the Acquisition, Newtek agreed to use its reasonable best efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable to obtain the requisite approval or non-objection notice from the Federal Reserve; and

•        in the event of a regulatory “Trigger Event” (as defined in the Acquisition Agreement) the Company agreed to use its commercially reasonable efforts to consult and cooperate with Newtek in order to restructure Newtek’s investment in the Company in a manner that avoids or remediates the matters giving rise to the Trigger Event to the reasonable satisfaction of Newtek.

Additionally, each of the Company, Newtek and NTS agreed to use its commercially reasonable efforts to obtain at the earliest practical date all consents, waivers, approvals, orders, permits, authorizations and declarations from, make all filings with, and provide all notices to, all governmental bodies which are required to consummate, or in connection with, the transactions contemplated by the Acquisition Agreement.

No Solicitation by Newtek

Newtek agreed, for a period of five years from and after the closing of the Acquisition, not to, and to cause its officers then-employed and its affiliates (including each such affiliate’s then-employed officers) not to, directly or indirectly:

•        in the United States and any other territory in which NTS engages in the Restricted Business (as defined below) own, manage, operate, or control any entity (other than NTS and the Company), whether in corporate, proprietorship or partnership form or otherwise, engaged in the business of providing information technology managed services, secure private cloud hosting, backup and disaster recovery and related products and services (the “Restricted Business”); provided, that the foregoing obligation (i) will apply with respect to officers only while such executive officers are employed by Newtek or its affiliates and (ii) will not restrict or prevent Newtek from engaging in any ordinary course banking activity or any business (other than the Restricted Business) in which Newtek currently engages (including the incidental ownership, management, operation or control by Newtek or its affiliates of an entity engaged in the Restricted Business resulting directly from such ordinary course banking activity or any business (other than the Restricted Business) in which Newtek currently engages);

•        cause, induce or encourage any customer, supplier or licensor of the Company, NTS or any of their affiliates (as of the closing) to terminate or modify any such relationship; or

•        hire or solicit the employment or engagement (whether as an employee, consultant or otherwise) of, or attempt to recruit for employment or engagement, any individual employed by the Company or NTS or contracting with the Company or NTS who was employed by or, to the extent known by Newtek, who was contracting with the Company or NTS during the previous 12 months prior to such hiring, solicitation or attempt to recruit; provided that the foregoing will not prohibit general solicitations of employment not targeted at any such current or former employee or consultant of the Company or NTS (and the hiring any person as a result of such solicitation).

Exclusivity

Newtek and NTS agreed not to, and agreed not to permit their respective representatives to, directly or indirectly, prior to the termination of the Acquisition Agreement:

•        discuss, encourage, negotiate, undertake, initiate, authorize, recommend, propose or enter into, either as the proposed surviving, merged, acquiring or acquired corporation, any business combination transaction, whether by way of merger, consolidation, business combination, purchase or disposition of the assets or equity interests of the Company (an “Acquisition Transaction”) other than the Acquisition and the transactions contemplated thereby;

•        facilitate, encourage, solicit or initiate discussions, negotiations or submissions of written offers, inquiries, proposals or indications of interest (other than an offer, inquiry, proposal or indication of interest by the Company) contemplating or relating to any Acquisition Transaction (each an “Acquisition Proposal”);

•        furnish or cause to be furnished, to any person, any information concerning the business, operations, properties or assets of NTS in connection with or in response to an Acquisition Proposal or an inquiry or indication of interest that could reasonably be expected to lead to an Acquisition Proposal;

•        approve, endorse, or recommend any Acquisition Proposal;

•        enter into any letter of intent or similar document or any contract contemplating or otherwise relating to any Acquisition Transaction; or

•        otherwise cooperate in any way with, or assist or participate in, facilitate or encourage, any effort or attempt by any other person to do or seek any of the foregoing.

Newtek also agreed to, and agreed to cause NTS and their affiliates and representatives to:

•        immediately cease and cause to be terminated any existing discussions or negotiations with any persons (other than the Company) conducted prior to the Execution Date with respect to an Acquisition Proposal;

•        notify the Company orally and in writing promptly (but in no event later than two business days) after receipt of any inquiry that could reasonably be expected to lead to an Acquisition Proposal or any request for non-public information relating to NTS or for access to the properties, books or records of NTS by any person other than the Company;

•        to the extent not previously requested, request the return or destruction of any confidential written or electronic materials provided to any person in connection with a contemplated or potential Acquisition Proposal; and

•        immediately prohibit any access by any person (other than the Company and its representatives) to any physical or electronic data room relating to a possible Acquisition Proposal.

Employee Matters

Pursuant to the Acquisition Agreement, the Company agreed that the employees of NTS who continue to remain employed with the Surviving Entity following the closing of the Acquisition (the “Continuing Employees”) will, during the period commencing at the closing of the Acquisition and ending on the first anniversary of the closing of the Acquisition, be provided with (i) base wages that are no less favorable than the base wages provided to each such Continuing Employee immediately prior to the closing of the Acquisition, and (ii) pension and welfare benefits that are no less favorable in the aggregate than those provided by NTS to such Continuing Employees immediately prior to the closing of the Acquisition.

The Company agreed to take commercially reasonable actions to (i) cause any pre-existing conditions or limitations and eligibility waiting periods under any group health plans of the Company or its affiliates to be waived with respect to the Continuing Employees and their eligible dependents, (ii) give each Continuing Employee credit for the plan year in which the closing occurs towards applicable deductibles and annual out-of-pocket limits for medical expenses incurred prior to the closing of the Acquisition for which payment has been made and (iii) give each Continuing Employee service credit for such Continuing Employee’s employment with NTS for purposes of vesting, benefit accrual and

eligibility to participate under each applicable Company benefit plan, as if such service had been performed with NTS, except for benefit accrual under defined benefit pension plans, for purposes of qualifying for subsidized early retirement benefits or to the extent it would result in a duplication of benefits.

Prior to the closing of the Acquisition and thereafter (as applicable), NTS and the Company agreed to take any and all actions as may be required to permit each Continuing Employee to make rollover contributions of “eligible rollover distributions” (within the meaning of Section 401(a)(31) of the Internal Revenue Code of 1986, as amended (the “Code”), including of loans) in the form of cash, shares of Company common stock, notes (in the case of loans) or a combination thereof, in an amount equal to the full account balance distributed or distributable to such Continuing Employee from Newtek’s 401(k) plan to a tax-qualified defined contribution retirement plan designated by the Company. As a result, each Continuing Employee will become a participant in the Company’s 401(k) Plan at the closing, and there will be no gap in participation; provided that such Continuing Employee, after giving effect to the service crediting provisions under the Acquisition Agreement, has satisfied the eligibility provisions of the Company’s 401(k) Plan.

Indemnification

The representations and warranties contained in the Acquisition Agreement, any Transaction Document and any certificate delivered pursuant to the Acquisition Agreement survive the closing of the Acquisition through and including the 18-month anniversary of the closing of the Acquisition. Fundamental representations survive indefinitely. Covenants survive for the respective term specified in such covenant or, if not specified, until performed.

The Company agreed to indemnify and hold harmless Newtek and its respective affiliates from and against losses incurred, arising out of or relating to: (i) any breach or inaccuracy of any of the representations or warranties of the Company contained in the Acquisition Agreement, the Transaction Documents or the certifications of the responsible officers of the Company delivered to NTS and (ii) any breach of any of the covenants or agreements of the Company contained in the Acquisition Agreement or the Transaction Documents or the certification of a responsible officer of the Company delivered to NTS and Newtek.

Newtek agreed to indemnify and hold harmless the Company, the Surviving Entity and their respective affiliates from and against losses incurred, arising out of or relating to: (i) any breach or inaccuracy of any of the representations or warranties of NTS, any Transaction Document or the certification of a responsible officer of NTS delivered to the Company, (ii) any breach or inaccuracy of the representations and warranties of Newtek, any Transaction Document or the certification of a responsible officer of Newtek delivered to the Company, (iii) any breach of any of the covenants or agreements of NTS or Newtek contained in the Acquisition Agreement or any Transaction Document, (iv) any and all Company Taxes (as defined in the Acquisition Agreement), (v) Transaction Expenses and Indebtedness (each, as defined in the Acquisition Agreement) as of the closing of the Acquisition not properly included in the Final Adjustment Amount and (vi) certain scheduled items.

The foregoing indemnity obligations are subject to the following limitations: (i) except for losses arising from fraud or breach of the fundamental representations of Newtek and NTS (i.e., organization, qualification, authority, enforceability, non-contravention, capitalization, brokers’ fees, anti-takeover statutes and ownership and transfer of NTS common stock), Newtek will not have any liability in respect of any individual indemnification claim or series of related indemnification claims unless and until such indemnification claim or indemnification claims involve losses in excess of $25,000, (ii) except for losses arising from fraud or breach of the fundamental representations of Newtek and NTS, Newtek will not have any liability until the Company or its indemnitees have suffered losses in excess of $75,000 and (iii) other than in the case of fraud or any breach of any fundamental representation of Newtek or NTS, Newtek’s liability will not exceed $75,000.

Each party is subject to a duty to mitigate indemnifiable losses. Except with respect to fraud, from and after the closing of the Acquisition, the indemnity provided in the Acquisition Agreement and the R&W Insurance Policy will be the sole and exclusive remedy of each of the parties with respect to any and all actions for losses sustained or incurred relating to, arising out of or resulting from the Acquisition Agreement.

Termination

The Acquisition Agreement may be terminated at any time prior to the closing of the Acquisition as follows:

•        by mutual written consent of the Company and Newtek;

•        by either the Company or Newtek if any governmental body of competent jurisdiction shall have issued a final and non-appealable order, decree or judgment prohibiting the consummation of the Acquisition; provided, that the right to terminate the Acquisition Agreement will not be available to a party if such order was primarily due to the action or inaction of such party;

•        by either the Company or Newtek in the event that the closing has not occurred on or prior to February 9, 2025 (the “Termination Date”); provided, however, that (i) Newtek may not terminate the Acquisition Agreement if such failure of the closing to occur is primarily due to the failure of NTS or Newtek to perform and comply in all material respects with the covenants and agreements to be performed or complied with by NTS or Newtek, as applicable, and (ii) the Company may not terminate the Acquisition Agreement if such failure of the closing to occur is primarily due to the failure of the Company to perform and comply in all material respects with the covenants and agreements to be performed or complied with by the Company;

•        by either the Company or Newtek in the event if there has been an event, change, occurrence or circumstance, individually or in the aggregate with any such events, changes, occurrences or circumstances, that has had or could reasonably be expected to have a material adverse effect on NTS (in the case of the Company) and on the Company (in the case of Newtek); or

•        by either the Company or Newtek if there has been a breach or inaccuracy of the other party’s representations and warranties in the Acquisition Agreement or a failure to perform its covenants and agreements in the Acquisition Agreement (which, in the case of the right of termination by the Company, also includes any breach by NTS), in any such case in a manner that would result in, if occurring and continuing at closing, the failure of the conditions to the closing set forth in the Acquisition Agreement, as applicable, unless such failure is reasonably capable of being cured by the Termination Date, in which case, so long as the breaching party is using commercially reasonable efforts to cure such failure, the breaching party will have 30 days (but in no event beyond the Termination Date) after receipt of notice from the terminating party of its intention to terminate the Acquisition Agreement to cure such failure before the terminating party may so terminate the Acquisition Agreement; provided, however, no party may terminate the Acquisition Agreement if (i) any of such party’s representations and warranties shall have become and continue to be untrue in a manner that would cause certain of the Company’s closing conditions (with respect to a termination by Newtek) or certain of Newtek and NTS’s closing conditions (with respect to a termination by the Company), as applicable, not to be satisfied, (ii) there has been, and continues to be, a failure by such party to perform its covenants and agreements in such a manner that would cause certain of the Company’s closing conditions (with respect to a termination by Newtek) or certain of Newtek and NTS’s closing conditions (with respect to a termination by the Company), as applicable, not to be satisfied, or (iii) the failure of the terminating party to fulfill any of its obligations under the Acquisition Agreement has been the primary cause of, or resulted in, the breach by the non-terminating party.

If the Acquisition Agreement is terminated, all rights and obligations of the parties under the Acquisition Agreement will terminate; provided that the termination of the Acquisition Agreement will not relieve any party from any liability for any willful and intentional breach of the Acquisition Agreement by such party or for fraud by such party, and all rights and remedies of a non-breaching party under the Acquisition Agreement in the case of any such willful and intentional breach or fraud, at law and in equity, will be preserved, including the right to recover reasonable attorneys’ fees and expenses. Except to the extent otherwise provided in the immediately preceding sentence, the parties shall have no liability to each other under or relating to the Acquisition Agreement in the event of the termination of the Acquisition Agreement.

No Termination Fee

In the event the Acquisition Agreement is terminated, no party thereto will owe a termination fee to any other party under or relating to the Acquisition Agreement.

Amendments

The Acquisition Agreement may be amended by the parties at any time before or after approval of the matters presented to the Company’s stockholders the Special Meeting, but, after any such approval, no amendment will be made that by law requires further approval by such stockholders without such further approval. The Acquisition Agreement can be amended, supplemented or modified, and any provision thereof can be waived, only by written instrument making specific reference to the Acquisition Agreement signed by the party against whom enforcement of any such amendment, supplement, modification or waiver is sought.

Conditions to Closing of the Acquisition

Conditions to Each Party’s Obligations

The respective obligations of Newtek, NTS and the Company to consummate the Acquisition are subject to the satisfaction, on or prior to the closing of the Acquisition, of each of the following conditions, any one or more of which may be waived in writing subject to applicable law, in whole or in part, as to a party by such party (in such party’s sole discretion):

•        no provision of any applicable law shall prohibit the consummation of the transactions contemplated by the Acquisition Agreement and no final order shall have been issued, promulgated, enacted or enforced by any governmental body after the Execution Date enjoining or otherwise prohibiting the performance of the Acquisition Agreement or the consummation of any of the transactions contemplated thereby;

•        the Company Stockholder Approval shall have been obtained; and

•        certain master services agreements, to be effective as of the closing of the Acquisition, by and between (i) Newtek and NTS and (ii) Newtek Bank and NTS shall have been entered into by the respective parties thereto.

Conditions to NTS and Newtek’s Obligations

The obligations of NTS and Newtek to consummate the Acquisition are subject to the satisfaction, on or prior to the closing of the Acquisition, of each of the following conditions, any one or more of which may be waived in writing subject to applicable law, in whole or in part, by NTS and Newtek (in NTS’s and Newtek’s sole discretion):

•        (i) each of the Company’s fundamental representations (disregarding all qualifications or limitations as to “materially”, “material adverse effect” and words of similar import) shall be true and correct in all respects as of the Execution Date and as of the closing of the Acquisition as though made at and as of the closing of the Acquisition (other than such representations and warranties as are expressly made as of an earlier date, which shall be so true and correct as of such date), except for de minimis inaccuracies that do not (and are not reasonably expected to) result in any liability to Newtek, and (ii) each of the other representations and warranties made by the Company under the Acquisition Agreement shall be true and correct in all respects as of the Execution Date and as of the closing of the Acquisition as though made at and as of the closing of the Acquisition (other than such representations and warranties as are expressly made as of an earlier date, which shall be so true and correct as of such date), except for any failures of such representations and warranties to be so true and correct as have not had, and would not reasonably be expected to have, a material adverse effect on the Company;

•        the Company shall have performed and complied in all material respects with all covenants and agreements required by the Acquisition Agreement to be performed or complied with by the Company on or prior to the closing of the Acquisition;

•        NTS and Newtek shall have received a certificate, dated as of the closing of the Acquisition, signed by a responsible officer of the Company certifying that, to the best of such officer’s knowledge, the conditions set forth in Sections 8.3(a) and 8.3(b) of the Acquisition Agreement have been satisfied;

•        the Company shall have delivered or caused to be delivered all of the closing deliveries set forth in Section 3.4(a) of the Acquisition Agreement and in the other Transaction Documents;

•        there shall not have been or occurred any event, change, occurrence or circumstance that, individually or in the aggregate with any such events, changes, occurrences or circumstances, has had or which could reasonably be expected to have a material adverse effect on the Company;

•        the Divestiture and the sale of the Company’s Tinychat application shall have occurred;

•        NTS shall have received the opinion of Sullivan & Cromwell LLP (“Sullivan & Cromwell”) (or other nationally recognized tax counsel), in form and substance reasonably satisfactory to NTS, dated as of the closing of the Acquisition, to the effect that, on the basis of facts, representations and assumptions set forth or referred to in such opinion, the Acquisition will qualify as a “reorganization” within the meaning of Section 368(a) of the Code; and

•        Newtek shall (i) have received from the Federal Reserve a regulatory approval or non-objection notice, either orally or in writing, with respect to the Acquisition, (ii) have not received any determination by the Federal Reserve that the Acquisition would result in “control” of the Company by Newtek (as “control” is used for purposes of the BHCA), or any affirmative indication that the Federal Reserve would likely take such a view (through published guidance or other supervisory communications).

On October 31, 2024, Newtek agreed that in lieu of requiring a sale of the assets and liabilities related to the Tinychat application as part of the Divestiture, the condition requiring such sale will be satisfied if all operations of Tinychat Acquisition, Inc. (“Tinychat”) and the Tinychat application have ceased on the date of the closing of the Acquisition. As a result of the waiver, the Company will cease operations relating to Tinychat and the Tinychat application prior to the closing of the Acquisition.

Conditions to the Company’s Obligations

The obligations of the Company to consummate the Acquisition are subject to the satisfaction, on or prior to the closing of the Acquisition, of each of the following conditions, any one or more of which may be waived in writing subject to applicable law, in whole or in part, by the Company (in the Company’s sole discretion):

•        (i) each of the Newtek and NTS’s fundamental representations (disregarding all qualifications or limitations as to “materially”, “material adverse effect” and words of similar import) shall be true and correct in all respects as of the Execution Date and as of the closing of the Acquisition as though made at and as of the closing of the Acquisition (other than such representations and warranties as are expressly made as of an earlier date, which shall be so true and correct as of such date), except for de minimis inaccuracies that do not (and are not reasonably expected to) result in any liability to the Company, and (ii) each of the other representations and warranties (disregarding all qualifications or limitations as to “materially”, “material adverse effect” and words of similar import) made by NTS and Newtek under the Acquisition Agreement shall be true and correct in all respects as of the Execution Date and as of the closing of the Acquisition as though made at and as of the closing of the Acquisition (other than such representations and warranties as are expressly made as of an earlier date, which shall be so true and correct as of such date), except for any failures of such representations and warranties to be so true and correct as have not had, and would not reasonably be expected to have, a material adverse effect on NTS;

•        NTS and Newtek shall have performed and complied in all material respects with all covenants and agreements required by the Acquisition Agreement to be performed or complied with by NTS or Newtek, as applicable, on or prior to the closing of the Acquisition;

•        the Company shall have received a certificate, dated as of the closing of the Acquisition, signed by a responsible officer of NTS certifying that the conditions set forth in Sections 8.2(a) and 8.2(b) of the Acquisition Agreement have been satisfied;

•        the Company shall have received a certificate, dated as of the closing of the Acquisition, signed by a responsible officer of Newtek certifying that the conditions set forth in Sections 8.2(a) and 8.2(b) of the Acquisition Agreement have been satisfied;

•        NTS and Newtek shall have delivered or caused to be delivered all of the closing deliveries set forth in Section 3.4(b) of the Acquisition Agreement and in the other Transaction Documents;

•        there shall not have been or occurred any event, change, occurrence or circumstance that, individually or in the aggregate with any such events, changes, occurrences or circumstances, has had or which could reasonably be expected to have a material adverse effect on NTS; and

•        the Written Consent (as defined in the Acquisition Agreement) shall have been obtained and delivered to the Company and shall be in full force and effect.

Transaction Documents and Related Agreements

This section describes certain additional agreements entered into or to be entered into pursuant to the Acquisition Agreement but does not purport to describe all of the terms thereof. The following summary is qualified in its entirety by reference to the complete text of each of the agreements. Forms of the Registration Rights Agreement and Certificate of Designations are attached hereto as indicated in the respective descriptions. Stockholders and other interested parties are urged to read such agreements in their entirety prior to voting on the proposals presented at the Special Meeting.

Voting and Support Agreements

In connection with the Company’s entry into the Acquisition Agreement and as an inducement for Newtek to enter into the Acquisition Agreement, on August 11, 2024, the Company and Newtek entered into voting and support agreements (the “Voting Agreements”) with the Paltalk Holders, who collectively represent approximately 42.8% of the issued and outstanding shares of Company common stock as of November 13, 2024, whereby each Paltalk Holder (in such Paltalk Holder’s capacity as a beneficial owner of the Company’s common stock and, as applicable, not in such Paltalk Holder’s capacity as a director or officer of the Company), agreed to, among other things, vote or cause to be voted all common stock beneficially owned by such Paltalk Holder in favor of the Stock Issuance Proposal, the Divestiture Proposal and the Adjournment Proposal and against alternative transactions.

Pursuant to each Voting Agreement, each Paltalk Holder is restricted from selling or transferring shares of the Company’s common stock owned by such Paltalk Holder, subject to certain customary exceptions. The Voting Agreements will terminate upon the earliest to occur of (i) approval by the Company’s stockholders of the Stock Issuance Proposal and the Divestiture Proposal at the Special Meeting and (ii) the termination of the Acquisition Agreement pursuant to and in compliance with the terms thereof.

Registration Rights Agreement

At the closing of the Acquisition, the Company will enter into a Registration Rights Agreement, a form of which is attached hereto as Annex C (the “Registration Rights Agreement”), with Newtek pursuant to which, among other things, and subject to certain limitations set forth therein, the Company will be obligated to use its reasonable best efforts to prepare and file a registration statement registering the resale of the Conversion Shares as soon as practicable following the closing of the Acquisition.

In addition, pursuant to the Registration Rights Agreement, Newtek has the right to require the Company, subject to certain limitations set forth therein, to effect the registration of up to five underwritten offerings. The Registration Rights Agreement also provides Newtek with certain customary piggyback registration rights.

These registration rights are subject to certain conditions and limitations, including the Company’s right to delay or withdraw a registration statement under certain circumstances.

Certificate of Designations — Series A Non-Voting Common Equivalent Stock

In connection with closing of the Acquisition, the Company will file with the Secretary of State of the State of Delaware the Certificate of Designations designating the Preferred Stock, and establishing the preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends and other distributions, qualifications, or terms or conditions of redemption, of the shares of Preferred Stock. The total number of authorized shares of Preferred Stock will be 9,000,000 shares.

The following is a summary description of the Preferred Stock as contained in the Certificate of Designations and is subject to, and qualified in its entirety by reference to, the complete text of the Certificate of Designations. We encourage you to read the Certificate of Designations, a form of which is attached hereto as Annex D.

Maturity

The shares Preferred Stock are perpetual securities, unless converted in accordance with the Certificate of Designations.

Voting Rights

Holders of Preferred Stock generally do not have voting rights, except with respect to certain protective matters such as amendments to the Charter, or the Certificate of Designations that significantly and adversely affect the preferences, rights, privileges or powers of the Preferred Stock.

Ranking

Except with respect to the liquidation preference described below, the Preferred Stock ranks equally with the Company’s common stock with respect to dividends or distributions (including regular quarterly dividends) declared by the Board and rights upon any liquidation, dissolution, winding up or similar proceeding of the Company, as provided in the Charter.

Conversion and Transfer

Each share of Preferred Stock will automatically convert into one share of the Company’s common stock upon the consummation of a transfer by a holder that is both (i) to a person who is not an affiliate of the holder for purposes of the BHCA and (ii) (A) to the Company; (B) in a widespread public distribution; (C) in which no transferee (or group of associated transferees) would receive 2% or more of the outstanding securities of any class of voting securities of the Company; or (D) to a purchaser that would control more than 50% of every class of voting securities of the Company without any transfer from the holder. The conversion rate applicable to the Preferred Stock is subject to certain customary anti-dilution adjustments.

Dividends

Holders of Preferred Stock are entitled to receive dividends at the same time and on the same terms as the holders of the Company’s common stock in an amount equal to the product of the conversion rate then in effect and the per share dividend amount being paid in respect of each share of the Company’s common stock. The Board cannot declare or pay any cash dividend or make cash distributions in respect of the Company’s common stock unless the Board declares and pays to the holders Preferred Stock at the same time and on the same terms as the holders of the Company’s common stock the dividend to which the shares of Preferred Stock are entitled.

Liquidation

In the event of any liquidation, dissolution or winding up of the affairs of the Company, holders of the Preferred Stock are entitled to receive, in preference to the holders of the Company’s common stock, an amount per share equal to $0.0001, and would then participate equally with the Company’s common stock in the remainder of the distributions.

Preemptive and Other Rights

The shares of Preferred Stock do not have any voting powers except as expressly described in the Certificate of Designations, and, except as may otherwise be required by law, do not have any preferences or relative, participating, optional or other special rights, other than those specifically set forth in the Certificate of Designations and in the Charter. The shares of Preferred Stock do not have preemptive or subscription rights.

Repurchases

Subject to the limitations imposed in the Certificate of Designations, the Company may purchase and sell shares of the Preferred Stock from time to time to such extent, in such manner, and upon such terms as the Board or any duly authorized committee of the Board may determine.

Sinking Fund

The shares of Preferred Stock are not subject to the operation of a sinking fund.

Master Services Agreements

Pursuant to the terms of the Acquisition Agreement, NTS will enter into master services agreements with each of Newtek and Newtek Bank (together, the “Master Services Agreements”), each of which will have substantially similar terms and be effective as of the closing of the Acquisition. For purposes of this description of the Master Services Agreements, references to “NTS” with respect to services to be provided following the closing of the Acquisition shall refer to the Surviving Entity. The terms below reflect the current intentions of the parties to be bound by the Master Services Agreements and remain subject to further revision as the Master Services Agreements are negotiated and executed.

Pursuant to the Master Services Agreements, NTS will provide Newtek and Newtek Bank, as applicable, certain technological services, including the management of networks, servers, computers and technology infrastructure, as well as preventative maintenance and monitoring, third-party provider and end user support, and hardware and software vendor management in accordance with the terms of individual statements of work (collectively, “SOWs”).

Payments to NTS under the SOWs issued under the Master Services Agreement are generally payable monthly. Revenue that NTS will receive under the Master Services Agreements will generally depend on the services provided by NTS for the respective month. Following the Acquisition, the Company estimates that annual revenue under the Master Services Agreements will be approximately $6.0 million per year based on the SOWs that are currently anticipated.

The term of each Master Services Agreement will continue until terminated by either party to the applicable Master Services Agreement upon 30 days written notice to the applicable other party, provided that, in the event there are any outstanding SOWs at the time of termination, the term of the Master Services Agreement will automatically extend to, and be coterminous with, the completion, expiration or termination of all outstanding SOWs under such Master Services Agreement. In addition, the Master Services Agreements or any specific SOW may be terminated immediately by either party at such party’s sole discretion, upon written notice to the applicable other party (i) if such other party is in material breach of the Master Services Agreements and fails to cure the material breach within 30 days of receiving written notice of such breach, or (ii) upon the bankruptcy or dissolution of such other party. Further, Newtek or Newtek Bank, as applicable, may immediately terminate the applicable Master Services Agreement as a whole, or any specific SOW, at its sole discretion at any time prior to the expiration of the then-current term of such agreement, upon written notice to NTS, under certain circumstances, including but not limited to (i) if Newtek or Newtek Bank, as applicable, or any of Newtek or Newtek Bank’s affiliates, as applicable, have the right to terminate any other agreement between Newtek or Newtek Bank, as applicable, or any of Newtek or Newtek Bank’s affiliates, as applicable, on the one hand, and NTS or any of its affiliates, on the other hand or (ii) if NTS experiences a “change of control” (as defined in the Master Services Agreements).

Upon termination of the Master Services Agreements, NTS will agree to provide wind down assistance to Newtek or Newtek Bank, as applicable, for an agreed upon period of time not to exceed 12 months from the effective date of termination.

The Acquisition

Background of the Acquisition

Our management team and the Board regularly evaluate the Company’s performance, prospects and strategy with a focus on generating long-term value for our stockholders. While the Company continuously focuses on organic growth as well as efficiency initiatives, our management team and the Board also review and assess strategic alternatives available to the Company, including potential mergers or acquisitions of other assets or entities that are synergistic to our business.

In June 2022, the Company announced that it had engaged Roth Capital Partners, LLC (“Roth”) to help the Company explore strategic opportunities, including, but not limited to, potential mergers or acquisitions of other assets or entities that would be synergistic to the Company’s businesses. Over the past two years and in an effort to achieve that strategy, the Company met with over 25 companies and analyzed numerous potential mergers and acquisitions. Throughout this evaluation process, the Company’s overall goal was to identify an opportunity that had the greatest potential to increase stockholder value.

In December 2023, based on Newtek’s public disclosure of its commitment made to the Federal Reserve to divest or otherwise terminate the activities conducted by NTS, Mr. Katz approached Barry Sloane, Newtek’s President, Chairman and Chief Executive Officer, to discuss the potential acquisition of NTS by the Company in exchange for cash and equity (the “Proposed Acquisition”). Upon concluding his discussion with Mr. Sloane, Mr. Katz and the other members of our management team continued to discuss the opportunity internally. Our management team preliminarily determined that the Proposed Acquisition had the potential to provide a unique and accretive growth opportunity that would be consistent with the Company’s strategic focus on technology, while providing increased scale, new customers and greater geographic diversity. Following these internal discussions, our management team contacted Mr. Sloane to express the Company’s interest in additional discussions with Newtek regarding the Proposed Acquisition. Mr. Sloane then reached out to members of the management team of NTS to set up a meeting to further discuss the Proposed Acquisition.

On December 28, 2023, Messrs. Katz and Sloane met in person in Ft. Lauderdale, Florida to discuss the Proposed Acquisition. During this meeting, Messrs. Katz and Sloane discussed general parameters that could potentially apply to the Proposed Acquisition but did not agree to any specific terms.

On January 2, 2024, the Company and Newtek executed a mutual nondisclosure agreement relating to the Proposed Acquisition.

On January 4, 2024, Mr. Sloane, Jared Mills, the President of NTS, and Michael Schwartz, the Chief Legal Officer of Newtek, representatives of the Company, including Mr. Katz, Kara Jenny, the Company’s Chief Financial Officer, and Adam Zalko, the Company’s Senior Vice President, held a telephonic meeting to discuss the Company’s preliminary diligence requests, including the need for information relating to specific assets and financial statements of NTS. Throughout the remainder of the week, Ms. Jenny participated in several subsequent telephonic meetings with representatives of NTS to discuss these diligence requests.

On January 5, 2024, Mr. Katz and Ms. Jenny contacted representatives of Haynes and Boone to discuss the potential engagement of Haynes and Boone as legal advisor to the Company in connection with the Proposed Acquisition. Upon confirming that there were no existing conflicts, Haynes and Boone was formally engaged as legal advisor to the Company with respect to the Proposed Acquisition.

On January 5, 2024, Newtek made available to the Company and certain of its representatives a virtual data room containing various preliminary due diligence materials relating to NTS.

On January 18, 2024, the Proposed Acquisition was initially presented by our management to, and discussed with, members of the Board in connection with a special meeting of the Board. During this meeting, the Board provided our management with guidance on next steps in the evaluation process, which guidance included obtaining additional information relating to the Proposed Acquisition, and the Board requested that management provide the Board with periodic updates on the status of discussions concerning the Proposed Acquisition.

On February 9, 2024, at a special meeting of the Board, the Board discussed the status of the ongoing diligence efforts between the Company and Newtek, and the negotiation of the terms of a proposed non-binding letter of intent relating to the Proposed Acquisition. Mr. Katz briefed the Board on the proposed terms of the letter of intent and the Board authorized the Company to negotiate and enter into a non-binding letter of intent with Newtek relating to the Proposed Acquisition.

On February 19, 2024, representatives of Newtek, including Messrs. Sloane and Schwartz, representatives of the Company, including Mr. Katz, Ms. Jenny, and representatives of Haynes and Boone, held a telephonic meeting to discuss the initial parameters, structure and terms of the Proposed Acquisition.

On March 8, 2024, the Company and Newtek executed a non-binding letter of intent setting forth the initial parameters, structure and terms of the Proposed Acquisition (the “Letter of Intent”).

On March 11, 2024, the Board held a regularly scheduled meeting, during which Company management updated the Board on the execution of the Letter of Intent, the projected timeline for the Proposed Acquisition and the status of ongoing diligence efforts.

On April 17, 2024, Messrs. Sloane, Schwartz and Mills held an introductory telephonic meeting with representatives of the Company, including Mr. Katz, Ms. Jenny and Mr. Zalko and attorneys with Haynes and Boone, at which the parties discuss the Proposed Acquisition and certain material terms related thereto.

On April 18, 2024, representatives of Newtek, including Mr. Schwartz, and representatives of Sullivan & Cromwell, legal counsel to Newtek, held a telephonic meeting with representatives of Haynes and Boone to discuss preparation of the definitive transaction documents.

On April 19, 2024, Ms. Jenny held a telephonic meeting with NTS’s controller relating to NTS’s management team and NTS’s systems and structure for accounting.

On April 29, 2024, representatives of Haynes and Boone delivered the initial draft of the Acquisition Agreement to representatives of Sullivan & Cromwell. On this date, representatives of Newtek also informed the Company that, based upon its review and in light of the equity consideration to be received, in order for Newtek to proceed with Proposed Acquisition, divestiture of the Transferred Assets and Tinychat by the Company would be required, such that upon the completion of the Proposed Acquisition, the Company and certain of its related persons would no longer hold any right to operate or control such applications, whether directly or indirectly (the “Proposed Divestiture”).

From April 29, 2024 through May 6, 2024, representatives of NTS, including Mr. Mills, held a series of telephonic meetings with representatives of the Company, including Ms. Jenny and Mr. Zalko to review NTS’s product offering, vendor relationships and organizational structure.

On May 7, 2024, the Board held a regularly scheduled meeting, during which management briefed the Board on the Proposed Acquisition, including the potential transaction structure, closing conditions, timing and potential impact that the Proposed Acquisition could have on the Company’s business and operations.

On May 8, 2024, representatives of Haynes and Boone delivered an updated draft of the Acquisition Agreement to representatives of Sullivan & Cromwell reflecting the inclusion of the completion of the Proposed Divestiture as a condition to the closing of the Proposed Transaction.

On May 13, 2024, representatives of Newtek’s finance team and Mr. Mills held a telephonic meeting with representatives of the Company, including Ms. Jenny, to review NTS’s financial model.

On May 31, 2024, Messrs. Sloane and Mills, and representatives of Newtek’s finance team met with representatives of the Company, including Mr. Katz, to discuss NTS’s financial model.

On June 5, 2024, representatives of Sullivan & Cromwell delivered a revised draft of the Acquisition Agreement to representatives of Haynes and Boone.

On June 5, 2024, representatives of NTS, including Mr. Mills, held a telephonic meeting with representatives of the Company, including Mr. Katz, Ms. Jenny and Mr. Zalko to review NTS’s sales pipeline.

On June 11, 2024, the audit committee of the Board pre-approved the engagement of Anderson Tax LLC (“Anderson”) to conduct certain diligence services in connection with the Proposed Acquisition, including a quality of revenue analysis of NTS and a tax-related assessment. The Company formally engaged Anderson to conduct such diligence services on June 12, 2024.

On June 14, 2024, representatives of Haynes and Boone delivered a revised draft of the Acquisition Agreement to representatives of Sullivan & Cromwell.

From June 16 through June 18, 2024, Messrs. Katz and Zalko conducted a site visit at NTS’s data center located in Phoenix, Arizona. During this site visit, Messrs. Katz and Zalko met with representatives of NTS, including Mr. Mills.

On June 19, 2024, representatives of Haynes and Boone, representatives of Sullivan & Cromwell and members of management from Newtek and the Company held a conference call to discuss the drafts of the Acquisition Agreement that had been exchanged by the parties and their respective counsel and related legal matters, including whether the Proposed Acquisition should be structured as a stock purchase or a merger, applicable regulatory considerations and certain closing conditions.

On June 24, 2024, representatives of Haynes and Boone and representatives of Sullivan & Cromwell held a conference call and further discussed the structure of the Proposed Acquisition, applicable regulatory considerations as well as various aspects of the earn-out contemplated by the parties to be reflected in the draft Acquisition Agreement, the representations and warranties of the parties and interim operating covenants. Around this time, the parties agreed that the Proposed Acquisition would be structured as a two-step merger.

On July 8, 2024, representatives of Sullivan & Cromwell delivered a revised draft of the Acquisition Agreement to representatives of Haynes and Boone reflecting these discussions. Thereafter and in the subsequent weeks leading up to the execution of the Acquisition Agreement, the parties focused their efforts on resolving the remaining legal and commercial issues, including thorough and extensive internal and external discussions and calls and in-person diligence reviews. Representatives of Sullivan & Cromwell and Haynes and Boone exchanged numerous drafts of the Acquisition Agreement addressing various matters, in particular including the representations and warranties of the parties, interim operating covenants applicable to NTS and certain post-closing restrictive covenants. The proposed Registration Rights Agreement was also negotiated during this period, along with other transaction documents, including the Certificate of Designation and the Voting Agreements. The parties also engaged in negotiation with respect to the terms of the proposed Master Services Agreements and discussed the approach to be taken with respect to the employment agreements to be entered into with certain key NTS employees, including Mr. Mills.

On July 15, 2024, the audit committee of the Board pre-approved the engagement of Anderson to conduct additional diligence services in connection with the Proposed Acquisition, including a proof of cash audit of NTS. The Company formally engaged Anderson to conduct the proof of cash audit on July 15, 2024. Beginning with Anderson’s initial engagement on June 11, 2024 through July 29, 2024, Anderson held several discussions with the Company and NTS relating to such diligence services.

On July 17, 2024, the strategic transactions committee of the Board, which consisted of Geoffrey Cook and Lance Laifer, held a special telephonic meeting to discuss the Proposed Acquisition. Members of management gave a presentation to the strategic transactions committee on the Proposed Acquisition, including, other things, the proposed transaction timeline, deal economics, structure, work performed and to be performed by third-party consultants, anticipated expenses to be incurred and additional steps to be taken in connection with negotiation of the definitive documents for the Proposed Acquisition.

On July 22, 2024, the Board held a special telephonic meeting to discuss the Proposed Acquisition. Members of our management, as well as representatives of Haynes and Boone were also present. Representatives of Haynes and Boone reviewed with the Board its fiduciary obligations, particularly in the context of transactions such as the Proposed Acquisition and the Proposed Divestiture. Members of our management team then briefed the Board on, among other things, the status of negotiations that had occurred to date, the anticipated transaction timeline, deal economics, structure, material terms of the Acquisition Agreement, status of NTS’s current revenue streams, anticipated expenses to be incurred in the transaction and anticipated pro forma financial results.

On July 23, 2024, the Company engaged Scalar, LLC (“Scalar”) to provide a third-party valuation to assess the fair value of the contingent consideration arrangements as of the Proposed Acquisition date and to value the intangible assets in accordance with GAAP in order to allocate purchase price and determine goodwill following the Proposed Acquisition.

On July 25, 2024, Mr. Zalko conducted a site visit at NTS’s data center located in Edison, New Jersey, during which he met with representatives from NTS.

On August 1, 2024, at a regularly scheduled meeting of the Board, our management updated the Board on the status of diligence efforts and ongoing negotiations with Newtek relating to the Proposed Acquisition, and the material terms of the Acquisition Agreement, which had been circulated to the Board in advance of the meeting. The Board discussed the merits and risks of the Proposed Acquisition, as well as the financial model of NTS and potential opportunities for synergies and expense optimization.

On August 5, 2024, Mr. Katz contacted the members of the Board and informed them that the parties were able to reach resolution on substantially all outstanding issues and reaffirmed management’s commitment to the Proposed Acquisition substantially as presented to the Board earlier in the month.

On August 9, 2024, the Board held a special telephonic meeting to consider the Proposed Acquisition. Members of our management, as well as representatives of Haynes and Boone were also present. Members of our management team reviewed the negotiations that had occurred to date, reported that due diligence had been completed and, with the assistance of representatives of Haynes and Boone, reviewed in detail the material terms of the Proposed Acquisition. Members of Company management then presented certain financial analyses conducted with respect to the financial terms of the Proposed Acquisition. After a discussion by the Board of the terms of the Proposed Acquisition and the information presented by representatives of Haynes and Boone and Company management, and upon receiving our management’s recommendation to approve the Proposed Acquisition on the terms set forth in the draft Acquisition Agreement, the Board unanimously resolved to approve and adopt the Acquisition Agreement substantially as presented and the associated actions described in the Acquisition Agreement, including the Acquisition.

On the afternoon of August 11, 2024, the Company and Newtek finalized the Acquisition Agreement, including the various schedules and exhibits thereto, and executed the Acquisition Agreement. The Voting Agreements were executed concurrently with the Acquisition Agreement.

Following the execution of the Acquisition Agreement and the Voting Agreements, on the morning of August 12, 2024, the Company and Newtek each issued a press release announcing the transactions contemplated by the Acquisition Agreement, including the Acquisition.

The Board’s Reasons for Approving the Acquisition and the Related Stock Issuance

In evaluating the Acquisition Agreement and the transactions contemplated thereby, the Board consulted with members of our management and our legal, financial and other advisors. In reaching its decision to unanimously approve the Acquisition Agreement and the transactions contemplated thereby, the Board carefully considered a variety of factors supporting its decision, including, but not limited to, the material factors discussed below.

•        Strategic Considerations.

•        The ability to enter the cloud infrastructure and cybersecurity sectors with the acquisition of a business deemed ripe for growth both organically and through potential accretive acquisitions in the future.

•        A belief that the Acquisition will be accretive to the Company on key financial metrics, including revenue, Adjusted EBITDA, free cash flow and earnings per share.

•        The potential for a substantial increase in the Company’s scale with the addition of NTS and the ability to potentially cross-sell the ManyCam product to new customers.

•        The potential for a substantial increase in the depth and breadth to the Company’s technological capabilities, with the addition of NTS’s server hosting, cloud hosting, data storage, managed security, backup and disaster recovery services.

•        The belief that the Company’s business following the Acquisition will provide greater future prospects than the Company’s core video chat products being sold in the Divestiture.

•        The fact that the Acquisition would not require the Company to incur any additional indebtedness, and the fact that the Company following the Acquisition is expected to have greater access to liquidity.

•        Management Experience; Recommendation.    The experience and prior success of our management in integrating acquired businesses and assets, including ManyCam, our management’s understanding of the technology landscape in which NTS operates and our management team’s recommendation of the Acquisition.

•        Terms of the Acquisition Agreement.    The Board’s belief that the terms and conditions of the Acquisition Agreement (including all exhibits and disclosure schedules thereto) and including, among other things, the representations, warranties, covenants and agreements of the parties, the conditions to closing and the form and structure of the transaction consideration, in each case, are reasonable.

INFORMATION ABOUT THE COMPANY

General Information about the Company

The Company was incorporated under the laws of the State of Delaware in 2005. The Company is a communications software innovator that powers multimedia social applications. The Company’s existing product portfolio includes Paltalk, Camfrog and Tinychat, which together host a large collection of video-based communities. The Company’s other products include ManyCam and Vumber. ManyCam 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. Vumber 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. The Company has an over 20-year history of technology innovation and holds eight patents. The Company’s principal executive office is located at 30 Jericho Executive Plaza Suite 400E, Jericho, New York 11753. The Company’s telephone number is (212) 967-5120. The Company maintains an internet site at www.paltalk.com. Except for the Company’s filings with the SEC that are incorporated by reference into this Proxy Statement, the information on or accessible through the Company’s website is not a part of this Proxy Statement. For further information about the Company, please review the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023 and subsequent Quarterly Reports on Form 10-Q, which are incorporated by reference herein. Please see the section titled “Where You Can Find Additional Information; Incorporation of Certain Documents by Reference.”

INFORMATION ABOUT NTS

Overview

Background

NTS is a wholly owned subsidiary of Newtek that provides dedicated server hosting, cloud hosting, data storage, managed security, backup and disaster recovery, and other related services including consulting and implementing technology solutions for enterprise and commercial clients across the United States as well as small-and-medium sized businesses. On December 31, 2023, two of Newtek’s indirect subsidiaries, SIDCO, LLC (“SIDCO”) and Excel Web Solutions, LLC (“EWS”), were merged into NTS.

Newtek’s subsidiary, CrystalTech Acquisition Corporation, which was organized under the laws of the State of New York on May 6, 2004, acquired the assets of CrystalTech Web Hosting, Inc. on July 9, 2004, and was renamed CrystalTech Web Hosting, Inc. (“CrystalTech”) on July 12, 2004. On June 29, 2017, CrystalTech was renamed Newtek Technology Solutions, Inc. NTS was a portfolio company of Newtek until the Newtek’s conversion to a financial holding company on January 6, 2023, at which time NTS became a consolidated subsidiary of Newtek. Prior to January 6, 2023, Newtek operated as an internally managed non-diversified closed-end management investment company that was regulated as a business development company (“BDC”) under the Investment Company Act and was treated as a regulated investment company under the Code for U.S. federal income tax purposes. On January 6, 2023, Newtek completed its acquisition of the National Bank of New York City, a national bank regulated and supervised by the Office of the Comptroller of the Currency (the “Bank Acquisition”). In connection with the completion of the Bank Acquisition, Newtek’s former portfolio companies, including NTS, became consolidated non-bank subsidiaries of Newtek. On January 17, 2023, Newtek changed its name from Newtek Business Services Corp. to NewtekOne, Inc. In addition, as a result of commitments made to the Board of Governors of the Federal Reserve in connection with the Bank Acquisition, Newtek agreed to divest or otherwise terminate the activities conducted by NTS by January 6, 2025, subject to any extension of such date.

Business of NTS

NTS provides a comprehensive range of IT-related services, including dedicated server hosting, cloud hosting, data storage, managed security, backup and disaster recovery, and other related services including consulting and implementing technology solutions for enterprise and commercial clients across the United States as well as small-and-medium sized businesses.

NTS operates a secure private cloud from private suites in completely isolated areas 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 2025. Although NTS does not own or operate the Data Centers, NTS aims to use the high-level operations and standards provided by the Data Centers through its license agreements to provide NTS 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 NTS with a degree of confidence that the Data Centers provide the necessary power, cooling, maintenance, and fault tolerance required for secure and reliable operations. NTS’s critical infrastructure, hosted within the Data Centers, is designed to meet and exceed Tier 3 standards in all relevant categories. This allows NTS to deliver secure and compliant services to customers within heavily regulated industries, including financial services, healthcare, and other highly regulated industries. Additionally, NTS incorporates a redundant, carrier-neutral network design for communications paths, along with multiple hosting locations for its services, which improve the availability and resilience of NTS’s cloud services.

NTS sells and provides a range of IT-related services and goods, as follows:

Managed IT Security Services

NTS’s managed IT security services provide clients with ongoing management and support of their IT systems and services under a subscription or contract-based model. NTS’s 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. Customers of NTS’s managed IT security services typically pay a recurring fee, often based on service level agreements that define the specific services and performance metrics.

Professional Services

NTS’s 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. Customers of NTS’s professional services are typically invoiced either based on a time and materials basis or on a straight-line basis for all fixed fee arrangements.

Procurement Services

NTS offers two types of procurement services to its customers. NTS can either: (i) obtain software and hardware products on behalf of its customers, in which case NTS’s vendors drop ship the products to the NTS end customer, or (ii) obtain hardware or software on behalf of its customers and perform additional configuration and/or add additional inputs to the products before the products are shipped to the NTS customer. In the instance where NTS sells hardware and software products as a solution bundled with services, NTS typically obtains the products or software from its vendors, adds the additional inputs/configuration as detailed in the customer contract, and then ships the products to the end customer. For each type of procurement service, the NTS customer has their own negotiated contract and payment terms. When NTS provides a combination of hardware and software products with the provision of services, NTS will separately identify its 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 NTS would sell a promised good or service separately to a customer. NTS estimates the price based on observable inputs, including direct labor hours and allocable costs, or uses observable stand-alone prices when they are available.

Secure Private Cloud Hosting

NTS’s 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 data of NTS clients. NTS leverages 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. NTS’s secure private cloud hosting provides NTS’s clients with strong availability, data integrity and reliable performance, while meeting stringent compliance requirements. NTS’s secure private cloud hosting solutions are backed by 24/7 support from NTS’s expert team, with the goal of delivering secure, flexible and resilient infrastructure tailored to each NTS client’s unique business needs.

Managed Backup and Disaster Recovery

NTS’s managed backup and disaster recovery solutions provide comprehensive protection for customers’ critical data and IT infrastructure, ensuring business continuity and rapid recovery in the event of data loss, cyberattacks or system failures. NTS utilizes advanced backup technologies with automated, regular data backups, off-site replication and secure storage to prevent data corruption or loss. NTS’s disaster recovery solutions 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, NTS aims to ensure that its customers’ data is secure, accessible and compliant with industry standards.

Web Hosting

NTS’s web hosting services consist of several advanced security measures, including SSL/TLS encryption, firewalls, DDoS protection, malware scanning, and secure server configurations. NTS’s 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 help to ensure NTS customers’ compliance with industry standards and provide a reliable and secure environment for NTS customers’ online presence. NTS’s web hosting services are designed to provide

customer websites with an additional layer of protection from cyber-attacks and threats. Each NTS customer has their own contract and payment terms with respect to NTS’s web hosting services. The duration of such contracts is typically between one and four years, although the term may vary based on the needs of each particular customer. Customers of NTS’s web hosting services are invoiced on a monthly basis and pay a monthly fee, with revenue recognized on a monthly basis.

Competition

NTS’s main competitors include companies that provide cloud managed IT services, such as Rackspace Technology, Inc., Cognizant Technology Solutions Corporation, NTT Ltd., All Covered, Flexential, DXC Technology Company, Logicalis Group, Insight Enterprises, Inc., and CDW Corporation.

Geographic Areas of Operation

NTS operates in all 50 U.S. states and provides managed IT security services outside of the United States utilizing independent contractors.

Customers

During the fiscal year ended December 31, 2023 and the nine  months ended September  30, 2024, Newtek was NTS’s largest customer based on revenue and accounted for 16% and 27% of NTS’s revenue, respectively. In addition, a material portion of NTS’s revenue in the fiscal year ended December 31, 2023 (51%) and the nine months ended September 30, 2024 (55%) was derived from NTS’s 10 largest customers, including Newtek.

Suppliers

NTS relies on a number of suppliers for the operation of its business, including software companies such as Microsoft®, and suppliers of IT-related hardware, such as Nutanix, and its data center licensors.

Risk Management

NTS maintains an enterprise-wide risk-management (“ERM”) framework to identify, measure, mitigate, monitor and report material risks. NTS’s ERM process includes participation by NTS’s senior management and employees and is overseen by its senior officers. Cybersecurity has been identified among the material risks in NTS’s business and the following approach has been developed to address cybersecurity. NTS has developed an enterprise-wide cybersecurity risk management system and strategy to safeguard NTS’s assets and operations, including the protection of the confidentiality of nonpublic, sensitive personal and business information and the integrity and security of NTS’s information systems. NTS’s cybersecurity risk management processes are integrated into its overall risk management system and corporate governance framework. This integration ensures that cybersecurity considerations are embedded within its strategic decision-making processes and are aligned with its broader business objectives. By integrating cybersecurity into its overall risk management system, NTS promotes a comprehensive approach to risk mitigation and resilience-building across the organization. NTS’s senior management and board of directors oversee material risks facing NTS. NTS’s president and chief information security officer (“CISO”) oversee cybersecurity and technology risk. NTS’s senior officers are responsible for identifying, assessing, and managing its exposure to risks from cybersecurity threats. NTS’s CISO is responsible for assessing and managing material risks from cybersecurity threats, including monitoring the prevention, detection, mitigation and remediation of cybersecurity threats. NTS’s CISO oversees a team that regularly communicates with respect to the prevention, detection, mitigation and remediation of cybersecurity threats and incidents. The CISO’s team consists of individuals that have knowledge, skills and expertise to respond to a cybersecurity incident. NTS’s CISO coordinates with NTS’s executive officers relating to potentially material cybersecurity incidents and regularly discusses with NTS’s board of directors the effectiveness of NTS’s technology security, capabilities for disaster recovery, data protection, cyber threat detection and cyber incident response and management of technology-related compliance risks. NTS’s CISO is a Certified Information System Security Professional with decades of experience with technology in security, architecture, infrastructure and support in the financial, education, healthcare and verticals. NTS’s president has over 25 years of experience in enterprise technology services with expertise in managed services, private cloud, service operations, and security.

Employees

As of September 30, 2024, NTS had 51 full-time employees.

Government Regulations

NTS is subject to a wide range of laws, regulations, and legal requirements in the United States, including those that may apply to NTS’s products and services offerings, and those that impose requirements related to user privacy and data storage. How these laws and regulations apply to NTS’s business is often unclear, subject to change over time and sometimes may be inconsistent from jurisdiction to jurisdiction. To comply with regulatory obligations, NTS has established a system-focused approach to regulatory governance with an initial focus on privacy, digital safety and cybersecurity. The framework is designed to help NTS maintain customer trust and confidence in its products, remain in compliance with regulators and effectively scale its capability to address the growing number of complex regulations. NTS’s subject matter experts develop standards and implementation guidance, and, when appropriate, work with NTS’s staff to develop and implement products to monitor compliance.

Legal Proceedings

NTS is routinely subject to actual or threatened legal proceedings, including litigation, arising in the ordinary course of business. Litigation matters can range from individual actions involving a single plaintiff to class action lawsuits and can involve claims for substantial or indeterminate alleged damages or for injunctive or other relief. At any given time, these legal proceedings are at varying stages of adjudication, arbitration, or investigation, and may relate to a variety of topics. Assessment of exposure that could result from legal proceedings is complex because these proceedings often involve inherently unpredictable factors. As a result of these complexities, NTS may be unable to develop an estimate or range of loss. NTS evaluates legal proceedings based on information currently available, including advice of counsel. NTS establishes accruals for those matters, pursuant to ASC Topic 450, Contingencies, when a loss is considered probable and the related amount is reasonably estimable. While the final outcomes of legal proceedings are inherently unpredictable, NTS management is currently of the opinion that the outcomes of pending and threatened matters will not have a material effect on the NTS’s business, consolidated financial position, results of operations or cash flows as a whole.

NTS’S MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

The following discussion and analysis provides information which NTS’s management believes is relevant to an assessment and understanding of NTS’s consolidated results of operations and financial condition. The discussion should be read together with the consolidated and condensed consolidated financial statements and related notes that are included elsewhere in this Proxy Statement. The discussion and analysis should also be read together with the pro forma financial information as of September 30, 2024 and December 31, 2023 and for the nine months ended September  30, 2024 and for the year ended December 31, 2024. See “Unaudited Pro Forma Condensed Combined Financial Information.” This discussion may contain forward-looking statements based upon current expectations that involve risks and uncertainties. Actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Risk Factors” or in other parts of this Proxy Statement. Capitalized terms used and not defined herein shall have the meanings given to such terms elsewhere in this Proxy Statement.

Economic Overview

NTS is a wholly owned subsidiary of Newtek that provides dedicated server hosting, cloud hosting, data storage, managed security, backup and disaster recovery, and other related services including consulting and implementing technology solutions for enterprise and commercial clients across the U.S. as well as small-and-medium sized businesses. On December 31, 2023, two of Newtek’s indirect subsidiaries, SIDCO and EWS were merged into NTS.

NTS operates a secure private cloud from space NTS licenses within two Tier 3 data center facilities located in Phoenix, Arizona, and Edison, New Jersey. Although NTS does not own or operate these Data Centers, NTS fully benefits from the high-level operations and standards provided by the facilities. These Data Centers 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 ensures that the facilities provide the necessary power, cooling, maintenance, and fault tolerance required for secure and reliable operations. NTS’s critical infrastructure, hosted within these Data Centers, is designed to meet and exceed Tier 3 standards in all relevant categories. This allows NTS to deliver secure and compliant services to customers within industries with high regulatory requirements, including financial services, healthcare, and other highly regulated industries. Additionally, NTS incorporates a redundant, carrier-neutral network design for communications paths, along with multiple hosting locations for its services, ensuring high availability and resilience.

Economic Developments

NTS has observed and continues to observe supply chain interruptions, significant labor and resource shortages and commodity inflation, which has negatively impacted its business. Additionally, geopolitical events, such as trade disruptions, the ongoing war between Russia and Ukraine, the Israel conflict with Hamas, rising tensions in Asia, and elements of economic and financial market instability in the United States, the United Kingdom, the European Union and China have led to increased economic uncertainty. One or more of these factors may contribute to increased market volatility, may have long-term effects in the U.S. and worldwide financial markets, and may cause economic uncertainties or deterioration in the United States and worldwide. Additionally, in the event that the U.S. economy enters into a protracted recession, it is possible that the businesses and industries in which NTS’s customers operate could experience deterioration, which could ultimately lead to cutting back on IT budgets and expenditures, which could negatively affect NTS’s business. While NTS has not seen signs of an overall, broad deterioration in its operating results, there can be no assurance that NTS’s performance will not be negatively impacted by economic conditions, which could have a negative impact on NTS’s future results.

Critical Accounting Policies and Estimates

The preparation of financial statements and related disclosures in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the periods reported. Actual results could materially differ from those estimates.

Revenue Recognition

NTS sells a range of services and goods, including managed IT services, product and procurement services, professional services, web hosting, secure private cloud hosting, and backup disaster recovery. NTS sells hardware and software products on both a stand-alone basis without any services and as a solution bundled with services. When NTS provides a combination of hardware and software products with the provision of services, NTS separately identifies its performance obligations under the contract and the hardware and/or software products or services that will be provided. The total transaction price for an arrangement with multiple performance obligations is allocated at contract inception to each performance obligation in proportion to the stand-alone selling price of the hardware or software. The selling price is the price at which NTS would sell a promised good or service separately to a customer. NTS estimates that the price based on observable inputs, including direct labor hours and allocatable costs, or uses observable stand-alone prices when they are available. NTS’s professional services include the design and implementation of a wide range of IT products and services. Such services are typically provided by NTS or third-party subcontractor vendors on a stand-alone basis.

Revenue is measured based on the consideration specified in a contract with a customer. NTS’s contracts with customers often 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. NTS 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. NTS recognizes 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. NTS recognizes 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.

The various revenue types as presented on the condensed consolidated statements of operations are described as follows:

•        Web Hosting services:    These services keep customer websites safer from cyber-attacks and offer an additional layer of protection the customer would not necessarily have. Each customer has their own contract and payment terms. Contract duration is typically between 1-4 years, although the term may vary based on the customer’s needs. Web hosting services customers pay a monthly fee and there are typically no upfront costs associated with web hosting services. Customers are invoiced and revenue is recognized on a monthly basis.

•        Managed services:    These services provide ongoing management and support of IT systems and services under a subscription or contract-based model. They include proactive monitoring, regular system maintenance, security management, data backup, and disaster recovery, as well as help desk support for users. Managed services ensure that IT infrastructure and services remain operational, secure, and optimized. Customers typically pay a recurring fee, often based on service level agreements (SLAs) that define the specific services and performance metrics.

•        Professional services:    These include the design and implementation of a wide range of IT products and services. They include 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, & IT cost management. Customers are invoiced either based on a time and materials basis or on a straight-line basis for all fixed fee arrangements. NTS is the principal in these transactions as it controls the specified good or service before it is transferred to the customer, is primarily responsible for fulfillment of the order, and has pricing discretion. Based on this, NTS recognizes professional services revenue on a gross basis.

•        Procurement:    NTS has two types of product & procurement services that it offers to customers.

•        NTS obtains products on behalf of their customers and the NTS’s vendors drop ship the products to the end customer.

•        NTS obtains products or software on behalf of their customers and performs additional configuration and/or adds additional inputs to the products before the products are shipped to the end customer. In this instance, NTS receives the product from their vendors, adds the additional inputs/configuration as detailed in the customer contract, and then ships the product to the end 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. NTS is an agent in these transactions due to the following:

•        NTS does not obtain control over the product as products are drop shipped from their vendors directly to the customer.

•        NTS has no inventory risk.

•        NTS has pricing discretion in its transactions with customers. However, their pricing discretion is limited. If NTS priced its products at an above market rate, the customer would go elsewhere. In effect, NTS does not have absolute pricing discretion as these products can be purchased from other vendors, and the market limits the price NTS can charge the customer.

Based on this assessment, NTS recognizes 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

•        Secure Private Cloud:    The secure private cloud offerings include a digital infrastructure which consists of servers which are dedicated to a single customer. NTS has both on premise and off-premises secure private cloud offerings. The secure private cloud offerings typically are one performance obligation where NTS is providing the cloud storage to the customer and customers pay a monthly fixed fee for the service.

•        Backup and disaster recovery:    These services provide customers with the ability to recover their data in the event of data loss. Pricing for these services is based off of the customer contract and depends on the amount of backup storage needed. Customers are typically charged based off 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.

NTS classifies its right to consideration in exchange for deliverables as either a receivable or a contract asset (unbilled receivable). A receivable is a right to consideration that is unconditional (i.e., only the passage of time is required before payment is due). For example, NTS recognizes a receivable for revenue related to its transaction or volume-based contracts when earned regardless of whether amounts have been billed. NTS presents such receivables in accounts receivable, net in its consolidated balance sheets. They maintain an allowance for credit losses to provide for the

estimated amount of receivables that may not be collected. The allowance is based upon an assessment of customer creditworthiness, historical payment experience, the age of outstanding receivables, judgment, and other applicable factors.

A contract asset is a right to consideration that is conditional upon factors other than the passage of time. Contract assets are presented in current and other assets in NTS’s consolidated balance sheets and primarily relate to unbilled amounts on fixed-price contracts utilizing the output method of revenue recognition. Their contract assets and liabilities are reported at the end of each reporting period. The difference between the opening and closing balances of the contract assets and deferred revenue primarily results from the timing difference between performance obligations and the customer’s payment. NTS receives payments from customers based on the terms established in their contracts, which may vary generally by contract type.

NTS’s contract assets and liabilities are reported in a net position on a contract-by-contract basis at the end of each reporting period. The difference between the opening and closing balances of the contract assets and deferred revenue primarily results from the timing difference between performance obligations and the customer’s payment. they receive payments from customers based on the terms established in their contracts, which may vary generally by contract type.

Recent Developments

On August 11, 2024, Newtek entered into the Acquisition Agreement to sell NTS to the Company. Pursuant to the Acquisition Agreement, following and the satisfaction or waiver of the conditions to closing set forth therein: (i) NTS will merge with and into First Merger Sub, with NTS continuing as the interim surviving entity, and (ii) immediately following the consummation of the First Step Merger, NTS will merge with and into Second Merger Sub, with Second Merger Sub continuing as the surviving entity. At the closing of the Acquisition, pursuant to and subject to the terms and conditions of the Acquisition Agreement, Paltalk will (i) pay Newtek an amount in cash equal to $4,000,000, (ii) issue Newtek 4,000,000 shares of Preferred Stock and (iii) pay Newtek up to $5,000,000 in earn-out payments, payable in cash, shares of Preferred Stock or a combination thereof (in each case, subject to adjustment).

Discussion and Analysis of Financial Condition

Assets

Total assets at September 30, 2024 were $23.3 million, a decrease of $3.1 million, or 11.9%, compared to total assets of $26.4 million at December 31, 2023. Total assets at December 31, 2023 decreased by $1.8 million, or 6.4%, compared to $28.2 million at December 31, 2022.

Accounts Receivable, Net of Allowance

As of September 30, 2024, accounts receivable, net of allowance decreased $3.0 million compared to December 31, 2023. The overall decrease in accounts receivable is attributed to the decrease in sales in procurement and professional services for the periods presented as well as a write off of aged balances as of September 30, 2024 compared to December 31, 2023.

As of December 31, 2023, accounts receivable, net of allowance increased $1.2 million compared to December 31, 2022. While accounts receivable balances increased, the credit quality also increased, resulting in a lower allowance for doubtful accounts balance at December 31, 2023 compared to December 31, 2022. NTS’s management monitors the aging of accounts receivable on a monthly basis and writes off uncollectible accounts in accordance with its policy.

Goodwill and Intangible Assets

NTS’s goodwill relates to acquisitions prior to fiscal 2022 and the intangible assets consist primarily of technology customer lists. The change in the net carrying value is attributed to amortization expense. Goodwill is assessed periodically for impairment. No impairment was recorded for any of the periods presented.

Fixed Assets, Net

As of September 30, 2024, fixed assets, net decreased $0.6 million compared to December 31, 2023. The change was due to depreciation expense of $0.7 million, during the nine months ended September 30, 2024 along with fixed asset additions of $0.2 million during the period. At December 31, 2023, fixed assets, net decreased $0.7 million compared to December 31, 2022. The change was due to depreciation expense of $1.0 million, net of fixed asset additions of $0.3 million during 2023.

Liabilities

Total liabilities at September 30, 2024, were $8.2 million, a decrease of $3.3 million, or 28.7%, compared to total liabilities of $11.5 million at December 31, 2023. The decrease was primarily as a result of a decrease in accounts payable and accrued expenses. Total liabilities at December 31, 2023, decreased by $11.5 million, or 49.1%, compared to total liabilities of $23.0 million at December 31, 2022, primarily as a result of paydown of related party borrowings of $11.0 during fiscal 2023.

Right of Use Asset and Lease Liability

NTS has two colocation licenses for data center space in Phoenix, Arizona and Edison, New Jersey, that extend until 2025, which closely mirror and are therefore treated as operating leases (see the section titled “Index to NTS Financial Information — Note 12 — Leases”). Accounting under ASC 842 requires that a right of use asset and corresponding lease liability be recorded at the commencement of the lease, with rent expense being amortized on a straight-line basis over the lease term. The reduction in the right of use asset and corresponding lease liability is due to amortization.

Deferred Tax Liability

Primarily driven by NTS’s intangible assets, NTS had $2.6 million of deferred tax liability at September 30, 2024 and $2.6 million and $2.9 million in net deferred tax liabilities as of December 31, 2023 and 2022, respectively.

Components of Results of Operations

Managed Technology Revenue

NTS’s Managed Technology Revenue consists of revenue from (i) web hosting, (ii) managed services, (iii) secure private cloud hosting and (iv) backup and disaster recovery. Managed Technology services provide customers with ongoing management and support of IT systems and services under a subscription or contract-based model. Such services include proactive monitoring, regular system maintenance, security management, data backup, and disaster recovery, as well as help desk support for users. Managed services ensure that IT infrastructure and services remain operational, secure, and optimized. Customers typically pay a recurring fee, often based on service level agreements (SLAs) that define the specific services and performance metrics. Included in Managed Technology Revenue is revenue associated with Web Hosting, Secure Private Cloud Hosting, and Backup and Disaster Recovery.

Web Hosting

Web Hosting services keep customer websites safer from cyber-attacks and offer an additional layer of protection the customer would not necessarily have without such services. Each customer has their own contract and payment terms. Contract duration is typically between 1-4 years, although the term may vary based on the customer’s needs. Web hosting services customers pay a monthly fee and there are typically no upfront costs associated with web hosting services. Customers are invoiced, and revenue is recognized, on a monthly basis.

Managed Services

Managed services provide ongoing management and support of IT systems and services under a subscription or contract-based model. They include proactive monitoring, regular system maintenance, security management, data backup, and disaster recovery, as well as help desk support for users. Managed services ensure that IT infrastructure and services remain operational, secure, and optimized. Customers typically pay a recurring fee, often based on service level agreements (SLAs) that define the specific services and performance metrics.

Secure Private Cloud

The secure private cloud offerings include a digital infrastructure, which consists of servers housed in secure data centers. NTS has both on-premise and off-premise secure private cloud offerings. The secure private cloud offerings typically are one performance obligations where NTS is providing the cloud storage to the customer and customers pay a monthly fixed fee for the service.

Backup and Disaster Recovery

Backup and disaster recovery provides customers with the ability to recover their data in the event of data loss. Pricing for these services is based on of the customer contract and depends on the amount of backup storage needed. Customers are typically charged based off 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.

Professional Services

Professional services include the design and implementation of a wide range of IT products and services. They include 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, & IT cost management. Customers are invoiced either based on a time and materials basis or on a straight-line basis for all fixed fee arrangements.

Procurement Services

NTS has two types of product procurement services that it offers to customers.

•        NTS obtains products on behalf of their customers, and NTS’s vendors drop ship the products to the end customer.

•        NTS obtains products or software on behalf of their customers and performs additional configuration and/or adds additional inputs to the products before the products are shipped to the end customer. In this instance, NTS receives the product from its vendors, adds the additional inputs/configuration as detailed in the customer contract, and then ships the product to the end 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, 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 shipping point or when the software license is transferred.

Cost of Revenue

Cost of revenue includes product costs, outbound and inbound freight costs and direct time and materials in delivering service and goods to customers.

Results of Operations

The following table sets forth condensed consolidated statements of operations data for each of the periods indicated as a percentage of total revenues:

Nine Months Ended September 30, 2024 Compared to Nine Months Ended September 30, 2023

Summary

For the nine months ended September 30, 2024, NTS reported net income of $0.1 million compared to net income of $0.5 million for the nine months ended September 30, 2023, primarily as a result of the decrease in revenue discussed below.

Revenue

The following table sets forth total revenue for the nine months ended September 30, 2024, 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:

Managed Technology Revenue

For the nine months ended September 30, 2024, managed technology services revenue increased by $0.4 million, or 3.8%, compared to the nine months ended September 30, 2023. This increase is primarily attributed to an increase of $0.7 million, or 19.4%, in related party revenue in connection with the growth in NTS’s parent’s business.

Professional Services Revenue

For the nine months ended September 30, 2024, professional services revenue decreased by $0.7 million, or 14.0%, compared to the nine months ended September 30, 2023. This decrease is primarily attributed to a large customer putting a global pause on white label services through their acquisition period. NTS believes a portion of this revenue will get pushed into the fourth quarter of 2024.

Procurement Revenue

For the nine months ended September 30, 2024, procurement services revenue decreased by $2.3 million, or 37.6%, compared to the nine months ended September 30, 2023. This decrease is primarily attributed to the timing of renewals of agreements in the first nine months of 2024 compared to when they renewed during the nine months ended September 30, 2023.

Expenses

Total costs and expenses for the nine months ended September 30, 2024 decreased by $1.7 million, or 8.4%, as compared to the nine months ended September 30, 2023. The following table presents costs and expenses for the nine months ended September 30, 2024 and 2023, the increase or decrease between those periods, the percentage increase or decrease between those periods and the percentage of total revenue that each represented for those periods:

Cost of revenue

For the nine months ended September 30, 2024, cost of revenue decreased $1.4 million, or 12.0%, compared to the nine months ended September 30, 2023. The decrease was primarily related to the decrease in outside consulting fees incurred in connection with the decrease in professional services revenue.

General and administrative expenses

For the nine months ended September 30, 2024, general and administrative expenses decreased by $0.4 million, or 5.3%, compared to the nine months ended September 30, 2023. The decrease is related to decreases in headcount, as management believes it has aligned its headcount in the proper revenue categories aligning with future needs of the business, which has seen more demand in managed security as compared to legacy services, as well as a decrease in professional fees, and was offset by increased provision for credit losses.

Depreciation and amortization

For the nine months ended September 30, 2024, depreciation and amortization decreased by $60 thousand, or 5.3%, compared to the nine months ended September 30, 2023. The decrease is related to the amount of fixed asset that were fully depreciated /disposed of during the first nine months of fiscal 2024 compared to 2023.

Non-Operating Income (Expense)

The following table presents the components of non-operating income for the nine months ended September 30, 2024, 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:

Non-operating income (expense), net for the nine months ended September 30, 2024 was represented interest income of $18 thousand, an increase of $0.2 million or 107.8%, as compared to non-operating expense, net the nine months ended September 30, 2023. During the nine months ended September 30, 2023, NTS incurred interest expense of $246 thousand in connection with the repayment of the notes payable to a related party, as the amount was paid in full there was no interest expense for the nine months ended September 30, 2024.

Comparison of the Year Ended December 31, 2023 and December 31, 2022

Summary

For year ended December 31, 2023, NTS reported net income of $0.7 million compared to net loss of $1.4 million for the year ended December 31, 2022, primarily as a result of the decrease in expenses.

Revenue

The following table sets forth total revenue for the year ended December 31, 2024, 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:

Managed Technology Revenue

For the year ended December 31, 2023, managed technology services increased by $1.2 million, or 9.6%, compared to the year ended December 31, 2022. This increase is primarily attributed to the increased related party revenue of $0.7 million, or 17.9%, in connection with growth in NTS’s parent’s business.

Procurement Revenue

For the year ended December 31, 2023, procurement revenue decreased by $0.1 million, or 1.8%, compared to the year ended December 31, 2022. This decrease is primarily attributed to the timing of renewals of agreements during the year.

Professional Services Revenue

For the year ended December 31, 2023, professional services revenue decreased by $2.7 million, or 25.2%, compared to the year ended December 31, 2022. This decrease is primarily attributed to a large customer putting a global pause on white label services through their acquisition period. NTS believes a portion of this revenue will get pushed into the fourth quarter of 2024.

Expenses

Total costs and expenses for the year ended December 31, 2023 decreased by $0.6 million, or 4.4%, as compared to the year ended December 31, 2022. The following table presents costs and expenses for the year ended December 31, 2023 and 2022, 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

For the year ended December 31, 2023, cost of revenue decreased by $1.7 million to $16.8 million, or 9.2%, compared to the year ended December 31, 2022. The decrease was primarily related to the decrease in outside consulting fees incurred in connection with decrease professional services revenue. This decrease was as a result of a professional services customer putting their work on hold.

General and administrative expenses

For the year ended December 31, 2023, general and administrative expenses decreased by $1.8 million, or 13.8%, compared to the year ended December 31, 2022. The decrease is related to decrease in headcount as management believes it has aligned its headcount in the proper revenue categories, aligning with future needs of the business, which has seen more demand in managed security as compared to legacy services.

Depreciation and amortization

For the year ended December 31, 2023, depreciation and amortization increased by $22 thousand, or 1.5%, compared to the year ended December 31, 2022, the increase is related to the amount of fixed asset additions during the twelve months of fiscal 2023 compared to the same period for fiscal 2022.

Non-Operating (Expense) Income

The following table presents the components of non-operating (expense) income for the year ended December 31, 2023, the increase or decrease between those periods, the percentage increase or decrease between those periods and the percentage of total revenue that each represented for those periods:

Non-operating expense, net for the year ended December 31, 2023 was of $0.2 million, a decrease of $0.8 million, or 79.0%, as compared to non-operating expense, for the year ended December 31, 2022. During the year ended December 31, 2022, NTS incurred interest expense of $1.1 million in connection with payment of interest on notes payable due to a related party, compared to $0.2 million for the year ended December 31, 2023.

Liquidity and Capital Resources

Overview

NTS’s liquidity and capital resources are derived from its cash flows from operations, including income earned across the various revenue streams described above. For the nine months ended September 30, 2024 and the year ended December 31, 2023, NTS’s primary use of funds from operations included costs of revenue, general and administrative expenses and depreciation and amortization.

Cash Flows and Liquidity

Nine Months Ended September 30, 2024 Compared to Nine Months Ended September 30, 2023

The following table summarizes NTS’s available sources of liquidity as of September 30, 2024:

NTS generated and used cash as follows:

During the nine months ended September 30, 2024, operating activities provided cash of $1.7 million, consisting primarily of a $2.7 million decrease in accounts receivable. For the nine months ended September 30, 2023, operating activities provided cash $1.1 million a decrease of $0.5 million, primarily attributed to lower accounts payable and accrued expenses during that period.

During the nine months ended September 30, 2024 and for year ended December 31, 2023, cash used by investing activities was composed of $0.2 and $0.1 million, respectively, in connection with the purchase of fixed assets.

During the nine months ended September 30, 2024, there was no cash used in or provided by financing activities.

During the nine months ended September 30, 2023, $2.0 million cash was used in financing activities and was related to $11.0 million of related party debt being paid back, as well as payment of dividends of $1.0 million, offset by a $10.0 million capital contribution.

Year Ended December 31, 2023 Compared to Year Ended December 31, 2022

The following table summarizes NTS’s available sources of liquidity as of December 31, 2023:

NTS generated and used cash as follows:

During the year ended December 31, 2023, operating activities provided cash of $0.9 million, consisting primarily of a $1.1 million increase in accounts payable and $0.7 million in net income. These sources of cash were offset by a $1.3 million increase in accounts receivable, net of allowance and a $0.8 million decrease in accrued expenses and other liabilities.

During the year ended December 31, 2023, cash used by investing activities was composed solely of $0.3 million in fixed asset purchases, compared to $0.6 million of fixed asset purchases during the year ended December 31, 2022.

During the year ended December 31, 2023, net cash used by financing activities was $2.0 million, consisting of $11.0 million net paydowns on intercompany notes and $1.0 million in dividends paid. These uses of cash were offset by $10.0 million of capital contributions from Newtek.

Contractual Obligations

The following table represents NTS’s obligations and commitments as of September 30, 2024 and December 31, 2023. Amounts represent principal only and are not shown net of unamortized debt issuance costs. See the section titled “Index to NTS Financial Information — Note 8 — Borrowings”.

PROPOSAL 2: THE DIVESTITURE PROPOSAL

Overview

On November 7, 2024, the Company and the other Paltalk Parties entered into the Divestiture Agreement with Meteor Mobile, pursuant to which the Company agreed to sell its telecommunications services provider, “Vumber”, as well as its “Paltalk” and “Camfrog” applications and certain assets related to such services provider and applications to Meteor Mobile in exchange for (i) a cash payment of $1,350,000 and (ii) the assumption of all liabilities and obligations of any Paltalk Party arising out of or relating to the Business or Transferred Assets on or after the closing of the Divestiture, other than certain excluded liabilities, in each case subject to the terms and conditions set forth in the Divestiture Agreement.

Following the closing of the Divestiture, the Company and its subsidiaries will no longer be engaged in the business of providing video-based, live streaming, virtual camera and telecommunications software to consumers (as opposed to commercial entities), as and to the extent the Company currently conducts such businesses pursuant to the “Paltalk,” “Camfrog” and “Vumber” applications.

The Company will continue to own certain assets, properties, interests, and rights of the Paltalk Parties other than the Transferred Assets, including any patents, patent applications, and any rights or causes of action related to patent and patent applications, including the Company’s previously disclosed patent litigation against Cisco Systems, Inc., (other than the limited rights to be granted pursuant to the Patent License Agreement (discussed below)), or any assets (including intellectual property) that are not used exclusively in the operation of the Business.

The terms of the Divestiture Agreement are complex and only briefly summarized below. For further information, please see the full text of the Divestiture Agreement, which is attached as Annex B hereto.

Section 271 of the DGCL requires that a Delaware corporation obtain the approval of the holders of a majority of the corporation’s outstanding stock entitled to vote for the sale of all or substantially all of its property and assets. We are seeking the approval of the Divestiture by our stockholders in the event that the Divestiture is deemed to be a sale of substantially all of the assets of the Company under Section 271 of the DGCL.

Approval of the Divestiture Proposal requires the affirmative vote of the holders of a majority of the outstanding shares of our common stock entitled to vote on the Divestiture Proposal at the Special Meeting.

The Divestiture Agreement

This subsection of this Proxy Statement describes the material provisions of the Divestiture Agreement but does not purport to describe all of the terms of the Divestiture Agreement. The following summary is qualified in its entirety by reference to the complete text of the Divestiture Agreement, which is attached as Annex B hereto. You are urged to read the Divestiture Agreement in its entirety because it is the primary legal document that governs the Divestiture.

The Divestiture Agreement contains representations, warranties and covenants that the respective parties made to each other as of the date of the Divestiture Agreement or other specific dates. The assertions embodied in those representations, warranties and covenants were made for purposes of the contract among the respective parties and are subject to important qualifications and limitations agreed to by the parties in connection with negotiating the Divestiture Agreement. The representations, warranties and covenants in the Divestiture Agreement are also modified in important part by the underlying disclosure schedules, which are not filed publicly, are subject to a contractual standard of materiality different from that generally applicable to stockholders and were used for the purpose of allocating risk among the parties rather than establishing matters as facts.

General Description of the Divestiture and the Divestiture Agreement

On November 7, 2024, we entered into that certain Divestiture Agreement with Meteor Mobile, pursuant to which we will sell the Transferred Assets to Meteor Mobile in exchange for the Divestiture Closing Consideration (described below).

Meteor Mobile is an independent company that is not affiliated with the Company or its current directors or management (Michael Levit, a former director of the Company who served on the Board from 2016 to 2020 is the Chief Executive Officer of Tempest Tech Inc., the parent company of Meteor Mobile (“Tempest”)), with a portfolio of 20+ mobile apps that span the communication, privacy and utility categories. Meteor Mobile’s mission is to deliver intuitive tools that connect people and leverage technology to assist in everyday tasks.

The Divestiture Consideration

The Divestiture Closing Cash Consideration

If the Divestiture is completed, pursuant to and subject to the terms and conditions of the Divestiture Agreement, Meteor Mobile will (i) pay us an amount in cash equal to $1,350,000 and (ii) assume the Assumed Liabilities.

The Divestiture Revenue Earn-Out

In addition to the Divestiture Closing Consideration, the Divestiture Agreement provides that we are entitled to receive, with respect to each Earn-Out Period (defined below) an amount, if any (the “Divestiture Earn-Out Amount”), in cash, calculated as set forth below:

•        with respect to Earn-Out Period 1, the Divestiture Earn-Out Amount will equal (i) for any Revenue greater than or equal to $3,500,000 and less than $4,250,000, the amount of such Revenue multiplied by 0.30, plus (ii) for any Revenue greater than or equal to $4,250,000, the amount of such Revenue in excess of $4,250,000 multiplied by 0.40; and

•        with respect to each of Earn-Out Period 2, Earn-Out Period 3 and Earn-Out Period 4, the Divestiture Earn-Out Amount will equal (i) for any Revenue greater than or equal to $7,000,000 and less than $8,500,000, the amount of such Revenue multiplied by 0.30, plus (ii) for any Revenue greater than or equal to $8,500,000, the amount of such Revenue in excess of $8,500,000 multiplied by 0.40.

Within 30 days from the end of each Earn-Out Period, Meteor Mobile will provide us with a written calculation statement setting forth, in reasonable detail and with supporting documentation, the calculation of the Revenue for the applicable Earn-Out Period and the estimate of the Divestiture Earn-Out Amount owed to us. The calculation statement is subject to certain review and agreement rights of both the Company and Meteor Mobile. Further, the calculation statement is subject to the review of, and determination by, an independent accounting firm in the event that we and Meteor Mobile cannot reach an agreement as to the preparation or content of the calculation statement. For purposes of the above earn-out calculations:

“Revenue” means, for each applicable Earn-Out Period, the cash revenue, net of any refunds, attributable to the Business received by Meteor Mobile or any applicable affiliate of Meteor Mobile.

“Earn-Out Period 1” means the six-month period beginning on July 1, 2025, and ending on December 31, 2025.

“Earn-Out Period 2” means the twelve-month period beginning on January 1, 2026, and ending on December 31, 2026.

“Earn-Out Period 3” means the twelve-month period beginning on January 1, 2027, and ending on December 31, 2027.

“Earn-Out Period 4” means the twelve-month period beginning on January 1, 2028, and ending on December 31, 2028.

“Earn-Out Periods” means, collectively, each of Earn-Out Period 1, Earn-Out Period 2, Earn-Out Period 3 and Earn-Out Period 4, and each, individually, an “Earn-Out Period”.

The Acceleration Payment

Pursuant to the Divestiture Agreement, in the event that a Change of Control occurs on any date between the closing of the Divestiture and the end of the Earn-Out Period 4, the Paltalk Parties will be entitled to receive from Meteor Mobile an amount in cash (the “Acceleration Payment”) equal to:

•        if any of the Transferred Assets are sold independently (i.e., not sold contemporaneous with any Meteor Mobile Assets): (i) 50% of the aggregate consideration paid to Meteor Mobile and any of its subsidiaries for the Transferred Assets, minus (ii) the aggregate amount of any Divestiture Earn-Out Amount received by the Paltalk Parties by such date, minus (iii) the aggregate amount of any prior Acceleration Payments made by Meteor Mobile or its subsidiaries to any Paltalk Party; and/or

•        if any of the Transferred Assets are sold contemporaneous with any Meteor Mobile Assets: (i) the aggregate consideration paid to Meteor Mobile and any of its subsidiaries multiplied by the ratio of the trailing twelve month EBITDA of the Transferred Assets that are sold as part of the Change of Control and the trailing twelve month EBITDA of all assets being sold as part of the Change of Control, minus (ii) the aggregate amount of any Divestiture Earn-Out Amount received by the Paltalk Parties by such date, minus (iii) the aggregate amount of any prior Acceleration payments made by Meteor Mobile or its subsidiaries to any Paltalk Party (each an “Acceleration Payment”).

The minimum Acceleration Payment for the sale of “Paltalk,” “Camfrog” and “Vumber” is $1,650,000, $450,000 and $300,000, respectively, and the aggregate Acceleration Payment payable to the Company is capped at $5,000,000. Any Acceleration Payment must be made within 30 days of the Change of Control.

For purposes of the above discussion of the Acceleration Payments:

“Change of Control” means (i) the acquisition of 50% or more of the equity of Meteor Mobile by a third party, which for the avoidance of doubt excludes direct or indirect shareholders of Meteor Mobile as of the day before the closing of the Divestiture, or (ii) a sale of (a) all or substantially all of the assets of Meteor Mobile or (b) the Transferred Assets to a third party.

“Meteor Mobile Assets” means any assets owned by Meteor Mobile or any of its affiliates that are not Transferred Assets.

Material Adverse Effect

Under the Divestiture Agreement, certain representations and warranties of the parties are qualified in whole or in part by a material adverse effect standard for purposes of determining whether a breach of such representations and warranties has occurred. Pursuant to the Divestiture Agreement, a “material adverse effect” means, with respect to the Paltalk Parties, any state of facts, event, change, result, circumstance, occurrence or development that has a material adverse effect on the Business, results of operations or financial condition of the Paltalk Parties, taken as a whole, but excluding facts, events, changes, results, circumstances, occurrences or developments, either alone or taken together, relating to or arising from (i) the U.S. or worldwide economy or credit, currency, oil, financial, banking, securities or capital markets (including any increased cost, or decreased availability, of capital or pricing or terms related to any financing for the transactions contemplated by the Divestiture Agreement or any disruption thereof and any decline in the price of any security, commodity or market index), (ii) any national or international political, regulatory or social conditions, including acts of terrorism, sabotage, cyber-attack, military action, national emergency or war (whether or not declared), or any escalation or worsening thereof, (iii) the industries or markets in which any Paltalk Party operates or conducts its business generally, (iv) any earthquake, hurricane, tsunami, tornado, flood, mudslide or other natural disaster, pandemic, weather condition, explosion or fire or other force majeure event or act of God, whether or not caused by any person, or any national or international calamity or crisis, (v) the negotiation or execution of the Divestiture Agreement or the announcement, pendency, or performance of the Divestiture Agreement or the transactions contemplated thereby or the identity, nature or ownership of Meteor Mobile, including the impact thereof on the relationships, contractual or otherwise, of any Paltalk Party with any of its business relations or employees, (vi) actions permitted by or contemplated under the Divestiture Agreement, including obtaining any consent from any person or governmental authority, (vii) any action taken or statement made by Meteor Mobile or its affiliates or their respective representatives, (viii) any changes or prospective changes in law or GAAP, (ix) any failure, in and of itself, to meet any budgets, projections, forecasts, estimates, plans, predictions or milestones (whether or not shared with Meteor

Mobile or its affiliates or representatives) (but, for the avoidance of doubt, not the underlying causes of any such failure to the extent such underlying cause is not otherwise excluded from the definition of material adverse effect), (x) the effect of any breach, violation or non-performance of any provision of the Divestiture Agreement by Meteor Mobile or its affiliates or any action taken by Meteor Mobile or its affiliates with respect to the transactions contemplate by the Divestiture Agreement, (xi) actions required to be taken under applicable laws or contracts or (xii) attributable to any matter set forth on the disclosure schedules to the Divestiture Agreement; provided, however, that any event, occurrence, fact, condition or change referred to in clauses (i) through (iv) immediately above shall be taken into account in determining whether a material adverse effect has occurred or could reasonably be expected to occur to the extent that such event, occurrence, fact, condition or change has a disproportionate effect on the Business, taken as a whole, compared to other participants in the industries in which the Paltalk Parties conduct their respective businesses.

Pursuant to the Divestiture Agreement, a “material adverse effect” means, with respect to Meteor Mobile, any event, change, circumstance or development that (i) prevents, materially impairs or materially delays, or would reasonably be expected to prevent, materially impair or materially delay, the ability of Meteor Mobile to perform their obligations under the Divestiture Agreement and the ancillary agreements to which they are a party, including consummating the transactions contemplated hereby and thereby, or (ii) has, or would reasonably be expected to have, individually or in the aggregate, a material adverse effect on the assets, business, results of operations or financial condition of Meteor Mobile, taken together as a whole.

Closing of the Divestiture

The closing of the Divestiture is expected to take place by electronic communications and transmission of .PDF documents on a date to be designated by the parties to the Divestiture Agreement, which may not be more than two business days after the satisfaction or waiver of the last of the conditions described below under the subsection “— Conditions to the Closing of the Divestiture” (other than conditions that by their nature are to be satisfied at the closing, but subject to the satisfaction or waiver of those conditions at such time).

Representations and Warranties

Under the Divestiture Agreement, Meteor Mobile made customary representations and warranties relating to, among other things, organization and good standing, authority, validity and effect, absence of conflicts, required filings and consents, litigation, financing, solvency, brokers, disclaimer of other representations and reliance.

Under the Divestiture Agreement, we and the other Paltalk Parties made customary representations and warranties relating to, among other things, organization and good standing, authority, validity and effect, absence of conflicts, required filings and consents, solvency, deferred revenue, taxes, title to property, sufficiency of assets, compliance with laws, purchased contracts, litigation, intellectual property, employee benefits plans, labor matters, related party transactions, brokers and disclaimer of other representations.

Covenants of the Parties

Upon the terms and subject to the conditions set forth in the Divestiture Agreement, each of the parties agreed to use commercially reasonable efforts to take, or cause to be taken, all actions, and to do, or cause to be done, and to assist and cooperate with the other parties in doing, all things necessary, proper or advisable to consummate and make effective, in the most expeditious manner practicable, the transactions contemplated by the Divestiture Agreement and to obtain satisfaction or waiver of the conditions precedent to the consummation of the transactions contemplated thereby, including:

•        obtaining all of the consents and the making of all filings and the taking of all steps as may be necessary to obtain a consent from, or to avoid an action by, any governmental authority;

•        obtaining the necessary consents from third parties;

•        defending any action challenging the Divestiture Agreement or the consummation of the transactions contemplated thereby, including seeking to have any stay or temporary restraining order entered by any governmental authority vacated or reversed; and

•        the execution and delivery of any additional instruments necessary to consummate the transactions contemplated by, and to fully carry out the purposes of, the Divestiture Agreement.

Covenants of Meteor Mobile

Meteor Mobile made certain covenants under the Divestiture Agreement, including, among others, the covenants set forth below:

•        from the execution date of the Divestiture Agreement until the closing of the Divestiture or the earlier termination of the Divestiture Agreement, Meteor Mobile agreed to not, without the prior written consent of the Paltalk Parties, contact, in any manner, any customers, suppliers, service providers, employees or other business relations of the Paltalk Parties with respect to any matters relating to the Divestiture Agreement or the transactions contemplated thereby; and

•        during the period from the date of the Divestiture Agreement until the closing of the Divestiture or the earlier termination of the Divestiture Agreement, Meteor Mobile agreed to promptly advise the Company in writing if it becomes aware of (i) the occurrence, or non-occurrence, of any event that has caused any representation or warranty to be untrue or inaccurate in any material respect at any time after the signing of the Divestiture Agreement and prior to the closing of the Divestiture, and (ii) any material failure on its part to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it under the Divestiture Agreement.

Covenants of the Paltalk Parties

The Company and the other Paltalk Parties made certain covenants under the Divestiture Agreement, including, among others, the covenants set forth below:

•        between the execution date of the Divestiture Agreement and the closing of the Divestiture or the earlier termination of the Divestiture Agreement, each Paltalk Party agreed to use its reasonable best efforts to conduct the business of such Paltalk Party in the ordinary course of business, and to the extent consistent therewith, to use its best efforts to preserve intact its business in all material respects, except as (i) may be required by law, (ii) may be consented to in writing by Meteor Mobile, (iii) may be expressly required, contemplated or permitted pursuant to the Divestiture Agreement, or (iv) set forth on the disclosure schedules to the Divestiture Agreement;

•        each Paltalk Party agreed, subject to certain exceptions, to:

•        comply in all material respects with all laws applicable to the conduct of the Business or the ownership and use of the Transferred Assets;

•        not to (i) acquire or dispose of any Transferred Assets or (ii) mortgage or encumber any Transferred Assets other than permitted liens;

•        other than in the ordinary course of business or a termination by another contract party under the terms of a purchased contract, not enter into, amend, modify or terminate any purchased contract;

•        not enter into any settlement or release with respect to any material action relating to the Transferred Assets, unless such settlement or release contemplates only the payment of money (or the modification, termination or release of any rights or obligations of any Paltalk Party) without ongoing limits on the ownership or operation of the Transferred Assets;

•        not, in each case in respect of the Transferred Assets and in the event such action would cause a material increase in Meteor Mobile’s tax liability, (i) make, revoke, or modify any material tax election or (ii) commence any material tax action or settle or compromise any material tax action; or

•        not take or permit any action that would cause any of the changes, events or conditions described in the foregoing;

•        the Company agreed to take all action necessary in accordance with applicable laws and the organizational documents of the Company to duly give notice of, convene and hold the Special Meeting; and

•        during the period from the date of the Divestiture Agreement until the closing of the Divestiture or the earlier termination of the Divestiture Agreement, the Company agreed to advise Meteor Mobile in writing if a Paltalk Party obtains knowledge of (i) an occurrence or non-occurrence that has caused any representation or warranty made by any Paltalk Party to be untrue or inaccurate in any material respect at any time after the date hereof and prior to the Closing, and (ii) any material failure on the part of any Paltalk Party to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it under the Divestiture Agreement.

Exclusivity

During the period from the execution of the Divestiture Agreement through the closing of the Divestiture or the earlier termination of the Divestiture Agreement, the Paltalk Parties agreed not to, and cause its officers, managers, directors, partners, controlled affiliates and representatives not to, directly or indirectly, (i) solicit, undertake, authorize, propose, enter into or encourage the submission of any proposal or offer from any person (other than Meteor Mobile and its affiliates and representatives) relating to the acquisition of the equity interests of the Paltalk Parties or any portion of Transferred Assets (other than assets sold in the ordinary course of business) of the Paltalk Parties (including any acquisition structured as a merger, consolidation or equity exchange) (each, a “Divestiture Acquisition Proposal”), or (ii) furnish or cause to be furnished to any person (other than Meteor Mobile and its affiliates and representatives) any information with respect to the business, operations, properties or assets of any Paltalk Party or assist or participate in, or facilitate in any other manner any effort or attempt by any person to pursue any Divestiture Acquisition Proposal; provided, however, that a Paltalk Party’s representatives may respond to unsolicited inquiries, but solely for the purpose of communicating that such Paltalk Party is not able to entertain the unsolicited offer. The Paltalk Parties also agreed to instruct their broker to immediately cease and cause to be terminated any existing discussions or negotiations with any persons (other than Meteor Mobile) conducted with respect to any Divestiture Acquisition Proposal. In addition to the other obligations under this provision, the Paltalk Parties agreed to promptly (and in any event within three business days after receipt thereof by the Paltalk Parties) advise Meteor Mobile orally and in writing of any Divestiture Acquisition Proposal, any request for information with respect to any Divestiture Acquisition Proposal, or any inquiry with respect to or which could reasonably be expected to result in a Divestiture Acquisition Proposal, the material terms and conditions of such request, Divestiture Acquisition Proposal or inquiry, and the identity of the person making the same.

Employment and Benefit Arrangements

Pursuant to the Divestiture Agreement, commencing on the closing of the Divestiture, the Paltalk Parties will terminate all employees of the Business set forth on the disclosure schedules of the Divestiture Agreement, and, at Meteor Mobile’s sole discretion, Meteor Mobile may offer employment, on an “at will” basis, to any or all of such employees (the “Transferred Employees”).

The Paltalk Parties will remain solely responsible for the satisfaction of all claims for medical, dental, life insurance, health accident or disability benefits brought by or in respect of current or former employees, officers, directors, independent contractors or consultants of the Business or the spouses, dependents, or beneficiaries thereof, which claims relate to events occurring on or prior to the closing of the Divestiture. The Paltalk Parties will remain solely responsible for all workers’ compensation claims of any current or former employees, officers, directors, independent contractors or consultants of the Business which relate to events occurring on or prior to the closing of the Divestiture.

Each employee of the Business who becomes employed by Meteor Mobile in connection with the transactions contemplated by the Divestiture Agreement will be eligible to receive the salary and benefits maintained for employees of Meteor Mobile on substantially similar terms and conditions in the aggregate as are provided to similarly situated employees of Meteor Mobile.

Non-Competition and Non-Solicitation

For a period commencing on the closing of the Divestiture and ending on the date that is the last day of Earn-Out Period 4 (the “Restricted Period”), each Paltalk Party agreed not to, and to not permit any of its affiliates to, directly or indirectly, (i) engage in or assist others in engaging in the business of providing video-based, live streaming, virtual camera and telecommunications software to consumers (the “Divestiture Restricted Business”) in the United States, (ii) have an interest in any person that engages directly or indirectly in the Divestiture Restricted Business in the

United States in any capacity, including as a partner, shareholder, member, principal, agent, trustee or consultant, or (iii) intentionally interfere in any material respect with the business relationships (whether formed prior to or after November 7, 2024) between Meteor Mobile and customers or suppliers of the Business.

During the Restricted Period, no Paltalk Party will, and no Paltalk Party will permit any of its affiliates to, directly or indirectly, hire or solicit any Transferred Employee or encourage any such employee to leave such employment or hire any such employee who has left such employment, except pursuant to a general solicitation which is not directed specifically to any such employees; provided, that any Paltalk Party or any of its affiliates may hire (i) any employee whose employment has been terminated by Meteor Mobile, (ii) after 180 days from the date of termination of employment, any employee whose employment has been terminated by the employee, or (iii) any employee (A) not offered employment by Meteor Mobile or (B) not otherwise hired by Meteor Mobile pursuant to the Divestiture Agreement.

During the Restricted Period, no Paltalk Party will, and no Paltalk Party will permit any of its affiliates to, directly or indirectly, solicit or entice, or attempt to solicit or entice, any clients or customers of the Business or potential clients or customers of the Business for purposes of diverting their business or services from Meteor Mobile.

Indemnification

The representations and warranties contained in the Divestiture Agreement will survive the closing of the Divestiture and will remain in full force and effect until the end of the Earn-Out Period 4; provided, that the representations and warranties in Section 5.1, Section 5.2(a), Section 5.2(b)(i), Section 5.2(d), Section 6.1, Section 6.2 and Section 6.3(a)(i) of the Divestiture Agreement will survive until the expiration of the applicable statute of limitations provided by law. All covenants and agreements of the parties contained in the Divestiture Agreement will survive the closing indefinitely or for the period explicitly specified therein. Notwithstanding the foregoing, any claims asserted in good faith with reasonable specificity (to the extent known at such time) and in writing by notice from the non-breaching party to the breaching party prior to the expiration date of the applicable survival period shall not thereafter be barred by the expiration of the relevant representation or warranty and such claims shall survive until finally resolved.

From and after the closing of the Divestiture, Meteor Mobile agreed to indemnify and hold harmless each Paltalk Party and each of their respective successors and permitted assigns, and the officers, employees, directors, managers, members, partners, equity holders and affiliates and each of their heirs and personal representatives from and against any and all losses actually incurred, sustained by, or imposed upon any of such persons following the closing date of the Divestiture to the extent based upon (i) any assumed liability, (ii) Meteor Mobile or Meteor Mobile’s affiliates use of any nonassignable assets following the closing date, (iii) any liability (other than excluded liabilities) relating to the ownership, conduct, or operation of the Business or the ownership or use of the Transferred Assets following the closing, (iv) any inaccuracy in or breach of any representation or warranty set forth in Article VI of the Divestiture Agreement or (v) any breach or non-fulfillment of any covenant, agreement or obligation pursuant to the Divestiture Agreement or any ancillary agreement which are to be performed by Meteor Mobile after the closing of the Divestiture.

From and after the closing of the Divestiture, the Company agreed to indemnify and hold harmless Meteor Mobile and its successors and permitted assigns, and the officers, employees, directors, managers, members, partners, equity holders and affiliates and each of their heirs and personal representatives from and against any and all losses actually incurred, sustained by or imposed upon any of such persons following the closing date of the Divestiture to the extent resulting from (i) any inaccuracy in or breach of any of the representations or warranties of any Paltalk Party contained in the Divestiture Agreement, the ancillary documents or in any certificate or instrument delivered by or on behalf of a Paltalk Party pursuant to the Divestiture Agreement, (ii) any breach or non-fulfillment of any covenant, agreement, or obligation to be performed by any Paltalk Party pursuant to the Divestiture Agreement, the ancillary documents or any certificate or instrument delivered by or on behalf of a Paltalk Party pursuant to the Divestiture Agreement or (iii) any excluded asset, any excluded liability or any action related to the employee retention tax credit.

The foregoing indemnity obligations are subject to the following limitations: (i) the aggregate maximum liability of the Company relating to any inaccuracy or breach of any representations and warranties shall not exceed $750,000, and the maximum liability of the Company relating to clauses (ii) and (iii) of the foregoing paragraph shall not exceed the Divestiture Closing Consideration received by the Paltalk Parties, (ii) the amount of any losses subject to indemnification shall be reduced by the amounts recoverable by any indemnified person, as applicable, under applicable insurance policies or an indemnification, contribution or similar obligation of another person with respect to claims related to such losses and (iii) no party is entitled to recover or make a claim for consequential, incidental or indirect damages, lost profits or punitive damages.

Each party is subject to a duty to mitigate indemnifiable losses. Except with respect to fraud, from and after the closing of the Divestiture, the indemnity provided in the Divestiture Agreement will be the sole and exclusive remedy of each of the parties with respect to any and all actions for losses sustained or incurred relating to, arising out of or resulting from the Divestiture Agreement.

Termination

The Divestiture Agreement may be terminated at any time prior to the closing as follows:

•        by mutual written consent of the Company and Meteor Mobile;

•        by either the Company or Meteor Mobile if any governmental authority enacts, promulgates, issues, enters or enforces any injunction, judgment, order or ruling permanently enjoining, restraining or prohibiting the transactions contemplated by the Divestiture Agreement, which becomes final and non-appealable; provided, however, that the right to terminate the Divestiture Agreement under the foregoing is not available to any party whose violation or breach of the Divestiture Agreement was the cause of, or resulted in, such injunction, judgment, order or ruling;

•        by Meteor Mobile if:

•        there has been a violation or breach by a Paltalk Party of any covenant, representation or warranty contained in the Divestiture Agreement that has caused any of the conditions to the obligations of Meteor Mobile to consummate the Divestiture not to be satisfied and (i) such violation or breach has not been waived in writing by Meteor Mobile, (ii) Meteor Mobile has provided written notice to the Company of such violation or breach and its intent to terminate the Divestiture Agreement, and (iii) the applicable Paltalk Party has not cured such violation or breach within 10 business days (or by midnight Eastern Time on March 11, 2025, if sooner) after receiving written notice thereof from Meteor Mobile; provided, however, that Meteor Mobile is not entitled to terminate the Divestiture Agreement pursuant to the foregoing if there has been a violation or breach by Meteor Mobile of the Divestiture Agreement that has caused any of the conditions to the obligations of Meteor Mobile to consummate the Divestiture not to be satisfied; and provided, further, that the Paltalk Parties’ failure to consummate the closing on the closing date will not be subject to cure hereunder; or

•        the transactions contemplated by the Divestiture Agreement have not been consummated by March 11, 2025; provided, however, Meteor Mobile is not entitled to terminate the Divestiture Agreement pursuant if Meteor Mobile’s breach of the Divestiture Agreement has substantially contributed to the failure of, or has prevented, the consummation of the transactions contemplated thereby to occur by the March 11, 2025;

•        by the Company if:

•        there has been a violation or breach by Meteor Mobile of any covenant, representation or warranty contained in the Divestiture Agreement that has caused any of the conditions to the obligations of the Paltalk Parties to consummate the Divestiture not to be satisfied and (i) such violation or breach has not been waived in writing by the Company, (ii) the Company has provided written notice to Meteor Mobile of such violation or breach and its intent to terminate the Divestiture Agreement, and (iii) Meteor Mobile has not cured such violation or breach within 10 business days (or by midnight Eastern Time on March 11, 2025, if sooner) after receiving written notice thereof from the Paltalk Parties (provided, however, that the failure of Meteor Mobile to make the Closing Cash Consideration payment will only be subject to at most a one business day cure period unless otherwise agreed to in writing by the Company); provided, further, that the Company is not entitled to terminate the Divestiture Agreement pursuant to the foregoing if there has been a violation or breach of the Divestiture Agreement by a Paltalk Party that has caused any of the conditions to the obligations of the Paltalk Parties to consummate the Divestiture not to be satisfied; and provided, further, that Meteor Mobile’s failure to consummate the closing on the closing date shall not be subject to cure hereunder; or

•        the transactions contemplated hereby have not been consummated by March 11, 2025; provided, however, that the Company is not entitled to terminate the Divestiture Agreement if a Paltalk Party’s breach of the Divestiture Agreement has substantially contributed to the failure of, or has prevented, the consummation of the transactions contemplated thereby to occur by March 11, 2025.

Notwithstanding the foregoing, termination of the Divestiture Agreement will not relieve any party from liability as a result of any knowing and willful breach by such party of any of its representations, warranties, covenants or other agreements set forth in the Divestiture Agreement prior to the time of such termination.

Termination Fee

If the Company terminates the Divestiture Agreement by reason of the parties to the Acquisition Agreement not having satisfied or waived all conditions to the closing of the Acquisition, Meteor Mobile will be entitled to recover its actual out of pocket fees incurred in connection with the Divestiture Agreement, which fees shall not exceed $50,000.

Amendments

The Divestiture Agreement may be amended by the parties at any time before or after approval of the matters presented to the Company’s stockholders the Special Meeting, but, after any such approval, no amendment will be made that by law requires further approval by such stockholders without such further approval. The Divestiture Agreement can be amended or modified, and any provision thereof can be waived, only by written instrument signed by the Company and Meteor Mobile.

Conditions to the Closing of the Divestiture

Conditions to Each Party’s Obligations

The respective obligations of the Paltalk Parties and Meteor Mobile to consummate the Divestiture are subject to the satisfaction, on or prior to the closing of the Divestiture, of each of the following conditions, any one or more of which may be waived in writing subject to applicable law, in whole or in part, as to a party by such party (in such party’s sole discretion):

•        no provision of any applicable law shall prohibit the consummation of the transactions contemplated by the Divestiture Agreement; and

•        no final order shall have been issued, promulgated, enacted or enforced by any governmental authority after the execution date of the Divestiture Agreement enjoining or otherwise prohibiting the performance of the Divestiture Agreement or the consummation of any of the transactions contemplated thereby.

Conditions to Meteor Mobile’s Obligations

The obligations of Meteor Mobile to consummate the transactions contemplated by the Divestiture Agreement are subject to the satisfaction or waiver (if permitted by applicable law) at or prior to the closing of each of the following additional conditions:

•        (i) each of the fundamental representations and warranties of the Paltalk Parties (disregarding all qualifications or limitations as to “materially”, “material adverse effect” and words of similar import) shall be true and correct in all respects as of the execution date of the Divestiture Agreement and as of the closing date as though made at and as of the closing date (other than such representations and warranties as are expressly made as of an earlier date, which shall be so true and correct as of such date), except for de minimis inaccuracies that do not (and are not reasonably expected to) result in any liability to Meteor Mobile, and (ii) each of the other representations and warranties of the Paltalk Parties (disregarding all qualifications or limitations as to “materially”, “material adverse effect” and words of similar import) shall be true and correct in all respects as of the execution date of the Divestiture Agreement and as of the closing date as though made at and as of the closing date (other than such representations and warranties as are expressly made as of an earlier date, which shall be so true and correct as of such date), except for any failures of such representations and warranties to be so true and correct as have not had, and would not reasonably be expected to have, a material adverse effect on the Paltalk Parties;

•        each Paltalk Party shall have performed and complied in all material respects with all covenants and agreements required by the Divestiture Agreement to be performed or complied with such Paltalk Party, as applicable, on or prior to the closing date;

•        Meteor Mobile shall have received an omnibus certificate, dated as of the closing date, signed by a responsible officer of each Paltalk Party certifying that the applicable conditions set forth in Sections 9.3(a) and 9.3(b) of the Divestiture Agreement have been satisfied with respect to each applicable Paltalk Party;

•        the Paltalk Parties shall have delivered or caused to be delivered all of the closing deliveries set forth in Section 4.2 of the Divestiture Agreement and in the other ancillary documents;

•        the Paltalk Parties shall have obtained and delivered to Meteor Mobile all necessary consents, approvals, and/or authorizations from third parties to assign, transfer, or otherwise convey all applicable agreements, contracts, or rights described in Schedule 5.2(b) of the Divestiture Agreement, in a form satisfactory to Meteor Mobile; and

•        there shall not have been or occurred any event, change, occurrence, or circumstance that, individually or in the aggregate with any such events, changes, occurrences or circumstances, has had or could reasonably be expected to have a material adverse effect on the Paltalk Parties.

Conditions to the Company’s Obligations

The obligations of the Paltalk Parties to consummate the transactions contemplated by the Divestiture Agreement are subject to the satisfaction or waiver (if permitted by applicable law) at or prior to the closing of each of the following additional conditions:

•        (i) each of the fundamental representations and warranties of Meteor Mobile (disregarding all qualifications or limitations as to “materially”, “material adverse effect” and words of similar import) shall be true and correct in all respects as of the execution date of the Divestiture Agreement and as of the closing date as though made at and as of the closing date (other than such representations and warranties as are expressly made as of an earlier date, which shall be so true and correct as of such date), except for de minimis inaccuracies that do not (and are not reasonably expected to) result in any liability to the Paltalk Parties, and (ii) each of the other representations and warranties of Meteor Mobile (disregarding all qualifications or limitations as to “materially”, “material adverse effect” and words of similar import) shall be true and correct in all respects as of the execution date of the Divestiture Agreement and as of the closing date as though made at and as of the closing date (other than such representations and warranties as are expressly made as of an earlier date, which shall be so true and correct as of such date), except for any failures of such representations and warranties to be so true and correct as have not had, and would not reasonably be expected to have, a material adverse effect on Meteor Mobile;

•        Meteor Mobile shall have performed and complied in all material respects with all covenants and agreements required by the Divestiture Agreement to be performed or complied with by Meteor Mobile on or prior to the closing date;

•        the Company shall have received a certificate, dated as of the closing date, signed by a responsible officer of Meteor Mobile certifying that, to the best of such responsible officer’s knowledge, the conditions set forth in Sections 9.2(a) and 9.2(b) of the Divestiture Agreement have been satisfied;

•        Meteor Mobile shall have delivered or caused to be delivered all of the closing deliveries set forth in Section 4.3 of the Divestiture Agreement and in the other ancillary agreements;

•        there shall not have been or occurred any event, change, occurrence or circumstance that, individually or in the aggregate with any such events, changes, occurrences or circumstances, has had or which could reasonably be expected to have a material adverse effect on Meteor Mobile; and

•        all conditions to closing required to be satisfied in connection the transactions contemplated by the Acquisition Agreement have been satisfied or waived and the parties to the Acquisition Agreement stand ready, willing and able to close the transactions contemplated by the Acquisition Agreement, subject only to the closing of the transactions contemplated by the Divestiture Agreement.

The Patent License Agreement

Pursuant to the Divestiture Agreement, the parties agreed to negotiate in good faith to draft, execute, and deliver, prior to the closing of the Divestiture, a mutually agreed perpetual, irrevocable, royalty-free, fully paid-up, worldwide, non-exclusive license to use, reproduce, modify, display, distribute, and otherwise exploit the Vumber patent (the “Patent License Agreement”). The Patent License Agreement will provide, among other things, (i) the right of Meteor Mobile, at Meteor Mobile’s sole discretion, to enforce the Vumber patent against any third-party infringers that are competitors of Vumber, Phoner or any other phone software application owned by Meteor Mobile or any of its affiliates, which provision will specifically exclude the right to enforce the Vumber patent against public companies with revenues higher than the revenues generated by Vumber, (ii) the right of first refusal of Meteor Mobile in case of a sale or transfer of ownership rights in the Vumber patent to any third parties, (iii) the right of the Paltalk Parties to grant licenses on the Vumber patent to third parties, limited to parties with revenues of at least $1.0 billion, and (iv) if any of Meteor Mobile’s or any of its affiliates’ phone software applications, including Vumber, are acquired by a third party, the Patent License Agreement will remain in full force and effect only with respect to the phone software applications acquired by such third party. Any third party that acquires any of Meteor Mobile’s or any of its affiliates’ phone software applications will not receive the Patent License Agreement or any rights thereunder or with respect thereto for any of such third party’s existing phone software applications.

The Divestiture

Background of the Divestiture

On April 29, 2024, representatives of Newtek informed the Company that, as a closing condition of the Acquisition, the Company would be required to divest the Transferred Assets and Tinychat, such that upon the completion of such transaction, the Company and certain of its related persons would no longer hold any right to operate or control such applications, whether directly or indirectly.

On May 9, 2024, the Company met with Roth, who had been engaged in June 2022 to serve as the Company’s exclusive financial advisor and investment banker for strategic initiatives, to update Roth on the Company’s desire for Roth to find potential buyers of the Transferred Assets.

From May 9, 2024 through September 13, 2024, Roth prepared a summary selling memorandum and reviewed lists of potential acquirors of the Transferred Assets with the Company. In addition, Roth assisted with the preparation and coordination of the execution of non-disclosure agreements and coordinated access into virtual data rooms for potential buyers. During such time, the Company executed 12 non-disclosure agreements, contacted 34 potential buyers of the Transferred Assets through internal efforts and through assistance from Roth and received two potential competitive bids for the Transferred Assets (excluding the bid from Meteor Mobile).

On August 15, 2024, Mr. Katz held a telephonic meeting with Michael Levit, a former director of the Company and Chief Executive Officer of Tempest, to inquire as to whether Meteor Mobile would be interested in purchasing the Transferred Assets. Messrs. Katz and Levit discussed the potential transaction structure and certain material terms of the proposed transaction (the “Proposed Divestiture”).

On August 26, 2024, the Company and Meteor Mobile executed a mutual nondisclosure agreement relating to the Proposed Divestiture.

On August 28, 2024, the Company invited Meteor Mobile into the virtual data room in order for Meteor Mobile to begin diligence efforts in connection with the Proposed Divestiture. From August 29, 2024 through September 24, 2024, Meteor Mobile conducted diligence and held numerous telephonic calls with representatives of the Company, including Mr. Katz and Ms. Jenny, relating to material terms of the Proposed Divestiture, including employee matters.

On September 18, 2024, Meteor Mobile delivered a non-binding indication of interest for the Proposed Divestiture. Upon confirming that there were no existing conflicts, Haynes and Boone was formally engaged as legal advisor to the Company with respect to the Proposed Divestiture.

On September 24, 2024, Meteor Mobile provided updated business terms for the Proposed Divestiture based on its diligence efforts, and the Company formally agreed to the updated terms.

On October 7, 2024, Mr. Katz and other representatives from the Company met with Mr. Levit in New York, New York to discuss the material terms of the Proposed Divestiture.

On October 7, 2024, representatives of Haynes and Boone delivered an initial draft of the Divestiture Agreement to the Company, who then delivered the draft to Meteor Mobile.

On October 17, 2024, Meteor Mobile delivered an updated draft of the Divestiture Agreement to the Company.

On October 25, 2024, Mr. Katz and representatives from Meteor Mobile, including Mr. Levit and Brent Vegliacich, the outside general counsel of Tempest, held a telephonic conference to discuss outstanding business terms and remaining items to be addressed for the Divestiture Agreement.

On October 31, 2024, Newtek agreed to waive the condition requiring the sale of the Company’s Tinychat application so long as all operations of Tinychat and the Tinychat application have ceased on the date of the closing of the Acquisition.

On October 28, 2024, representatives of Haynes and Boone delivered an updated draft of the Divestiture Agreement to Meteor Mobile.

On October 29, 2024, Meteor Mobile delivered an updated draft of the Divestiture Agreement to representatives of Haynes and Boone.

On November 1, 2024, Mr. Katz and Mr. Vegliacich, held a telephonic conference to discuss outstanding business terms and remaining items to be addressed for the Divestiture Agreement.

On November 1, 2024, representatives of Haynes and Boone delivered an updated draft of the Divestiture Agreement to Meteor Mobile.

Thereafter, and in the subsequent days leading up to the execution of the Divestiture Agreement, the parties focused their efforts on resolving the remaining legal and commercial issues, including internal and external discussions and calls. Representatives of Meteor Mobile and Haynes and Boone exchanged numerous drafts of the Divestiture Agreement addressing various matters.

After a discussion by the Board of the terms of the Proposed Divestiture and the information presented by representatives of Haynes and Boone and Company management, and upon receiving our management’s recommendation to approve the Proposed Divestiture on the terms set forth in the draft Divestiture Agreement, on November 6, 2024, the Board unanimously resolved to approve and adopt the Divestiture Agreement substantially as presented and the associated actions described in the Divestiture Agreement, including the Divestiture.

On the afternoon of November 7, 2024, the Company and Meteor Mobile finalized the Divestiture Agreement, including the various schedules and exhibits thereto, and executed the Divestiture Agreement.

The Board’s Reasons for Approving the Divestiture

In evaluating the Divestiture Agreement and the transactions contemplated thereby, the Board consulted with members of our management and our legal, financial and other advisors. In reaching its decision to unanimously approve the Divestiture Agreement and the transactions contemplated thereby, the Board carefully considered a variety of factors supporting its decision, including, but not limited to, the material factors discussed below.

•        Strategic Considerations.

•        The fact that consummation of the Divestiture is a closing condition of the Acquisition and that the Acquisition Agreement provides a termination right to Newtek if the Divestiture Agreement has not been executed by November 30, 2024.

•        The belief that the Company’s business following the Acquisition and the Divestiture will provide greater future prospects than the Company’s core video chat products.

•        The fact that the Divestiture could provide greater liquidity, after receipt of the Divestiture Closing Cash Consideration and Divestiture Earn-Out Amount (if any), to facilitate growth of the Company following the Acquisition.

•        Prior History with Meteor Mobile Leadership; Management Recommendation.    The experience and prior history of Mr. Levit, who previously served on the Board, Mr. Levit’s familiarity with our core video chat products and Vumber, and our management team’s recommendation of the Divestiture.

•        Terms of the Divestiture Agreement.    The Board’s belief that the terms and conditions of the Divestiture Agreement (including all exhibits and disclosure schedules thereto) and including, among other things, the representations, warranties, covenants and agreements of the parties, the conditions to closing and the form and structure of the transaction consideration, in each case, are reasonable.

•        Ancillary Agreements.    The terms and conditions of the ancillary agreements to be entered into in connection with the Divestiture, in each case, including the exhibits and disclosure schedules thereto, and the Board’s belief that the terms of such agreements are reasonable.

•        Stockholder Approval.    The fact that the Divestiture is subject to approval by the Company’s stockholders at the Special Meeting.

•        Likelihood of Closing:    The likelihood, considering the terms of the Divestiture Agreement, that the Divestiture will be completed based on, among other things, the conditions to closing as set forth in the Divestiture Agreement and that the outside date of March 11, 2025 under the Divestiture Agreement allows for sufficient time to complete the Divestiture.

The Board also considered certain countervailing factors in its deliberations concerning the Divestiture, including, but not limited to, the following:

•        Business Risks.    Certain risks relating to the Divestiture and the Company following the Divestiture and the Acquisition (in each case, as further described under “Cautionary Note Regarding Forward-Looking Statements” and “Risk Factors” beginning on pages 15 and 17, respectively, of this Proxy Statement).

•        Risks Associated with the Acquisition.    The risk that the Company may not be able to successfully complete the Acquisition.

•        Investor Perception.    The potential impact on the market price of the Company’s common stock as a result of the announcement of the Company’s entry into the Divestiture Agreement.

•        Business Disruption Resulting from the Divestiture.    The challenges inherent in the sale of a business of the size and complexity of the Company, and the possible disruption of the Company’s business that might result from the announcement and pendency of the Divestiture, including the possible diversion of management and employee attention, potential employee attrition and potential adverse effects on the Company’s business relationships and pursuit of strategic opportunities.

•        Closing Conditions.    The fact that the completion of the Divestiture requires all conditions required to be satisfied in connection with the Acquisition and the satisfaction of other closing conditions that are not within the Company’s control.

•        Risks Associated with Failure to Complete the Divestiture.    The possibility that the Divestiture may not be consummated and the potential adverse consequences if the Divestiture is not completed, including substantial transaction costs incurred and a potential termination fee, potential loss in value to the Company’s stockholders and market reaction.

•        Exclusivity Restrictions.    The restrictions that the Divestiture Agreement imposes on the Company’s ability to solicit possible alternative transactions.

•        Litigation Risk.    The inherent risk of litigation in transactions of this nature, including the potential lawsuits that could be brought against the Company or the Board in connection with the Divestiture.

This discussion of the information and factors considered by the Board in reaching its conclusions and recommendation includes the principal factors considered by the Board but is not intended to be exhaustive and may not include all of the factors considered by the Board. In light of the number and wide variety of factors considered in connection with its evaluation of the Divestiture Agreement and the transactions contemplated thereby, the Board did not consider it practicable to, and did not attempt to, quantify or otherwise assign relative weights to the specific factors that it

considered in reaching its determination and supporting its decision. Rather, the Board viewed its decision as being based on the totality of the information presented or otherwise made available to it and the various other factors presented to and considered by the Board. In addition, individual directors may have given different weight to different factors. This explanation of the Company’s reasons for the Divestiture and all other information presented in this section is forward-looking in nature and, therefore, should be read in light of the factors discussed under “Cautionary Note Regarding Forward-Looking Statements” beginning on page 15 of this Proxy Statement.

Certain executive officers and non-employee directors of the Company have interests in the Divestiture that are different from, or in addition to, the interests of our stockholders generally. The Board was aware of and considered these potential interests, among other matters, in evaluating the Divestiture and in making its recommendation to the Company’s stockholders. For a discussion of these interests, please see the section titled “Interests of Certain Persons in the Divestiture” below.

After careful consideration, the Board concluded that the potential benefits that it expected the Company to achieve as a result of the Acquisition and the Divestiture outweighed the potentially negative factors associated with the Acquisition and the Divestiture, and on November 6, 2024, unanimously approved and adopted the Divestiture Agreement and the transactions contemplated thereby, including the Divestiture, declared expedient the Divestiture, declared advisable the Divestiture Agreement and the transactions contemplated thereby and directed that the Divestiture Proposal be submitted to the Company’s stockholders for approval at the Special Meeting and further recommended that the Company’s stockholders approve the Divestiture Proposal. The Board unanimously recommends that the Company’s stockholders approve the Divestiture Proposal and the related Adjournment Proposal.

Interests of Certain Persons in the Divestiture

In considering the recommendation of the Board to vote for the Divestiture Proposal presented at the Special Meeting, you should be aware that certain executive officers and non-employee directors of the Company may have interests in the Divestiture that are different from, or in addition to, the interests of our stockholders generally. The Board was aware of and considered these interests, among other matters, in evaluating the Divestiture and related documents and before recommending to our stockholders that they vote in favor of the Divestiture Proposal.

For purposes of the plans and agreements described below, the completion of the Divestiture will constitute a “Change in Control” as defined within the applicable documents.

Treatment of Equity Awards

The Company has granted nonqualified stock option awards to certain key employees, key contractors and outside directors under the 2016 Plan. As of November 13, 2024, there were 64,887 shares of common stock underlying outstanding and unvested stock options awarded under the 2016 Plan. Mr. Zalko, the Company’s Senior Vice President, is the only executive officer with unvested shares of common stock underlying outstanding stock option awards granted pursuant to the 2016 Plan. Each of our non-employee directors has 2,000 unvested shares of common stock underlying outstanding stock option awards granted pursuant to the 2016 Plan.

Under the 2016 Plan and the applicable award agreements for the stock option awards, the vesting of the stock options will only be accelerated upon a “Change in Control.”

For purposes of the 2016 Plan and the award agreements thereunder:

•        “Change in Control” generally means: (i) any consolidation, merger or share exchange of the Company in which the Company is not the continuing or surviving corporation or pursuant to which shares of the Company’s common stock would be converted into cash, securities or other property, other than a consolidation, merger or share exchange of the Company in which the holders of the Company’s common stock immediately prior to such transaction have the same proportionate ownership of common stock of the surviving corporation immediately after such transaction, (ii) any sale, lease, exchange or other transfer (excluding transfer by way of pledge or hypothecation) in one transaction or a series of related transactions, of all or substantially all of the assets of the Company, (iii) the stockholders of the Company approve any plan or proposal for the liquidation or dissolution of the Company, (iv) the cessation of control (by virtue of their not constituting a majority of directors) of the Board by the individuals who (x) at the date of the 2016 Plan were directors or (y) become directors after the date of the 2016 Plan and whose election or nomination for election by the Company’s stockholders was approved by a vote of at least

two-thirds of the directors then in office who were directors at the date of the 2016 Plan or whose election or nomination for election was previously so approved, or (v) the acquisition of beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act) of an aggregate of 50% or more of the voting power of the Company’s outstanding voting securities by any person or group (as such term is used in Rule 13d-5 under the Exchange Act) who beneficially owned less than 50% of the voting power of the Company’s outstanding voting securities on the date of the 2016 Plan.

Pursuant to the 2016 Plan and the stock option award agreements relating to Mr. Zalko’s stock option awards, (i) 50% of the then unvested shares underlying the stock options shall immediately vest on the date of the Change in Control; and (ii) the remaining 50% of the unvested shares shall vest on the earlier of (A) the original date such shares would have vested under the time-based vesting provisions in the applicable award agreement, or (B) equally on the first and second anniversary of the effective date of the Change in Control; provided that Mr. Zalko remains continuously employed by the Company through such earlier date.

Pursuant to the 2016 Plan and the stock option award agreements, all of the then-unvested shares underlying stock options awarded to our non-employee directors shall immediately vest and become fully exercisable, if not previously so exercisable, on the date of the Change in Control.

Except with respect to the shares underlying stock options that will vest in connection with the Divestiture, which is a condition to closing the Acquisition, no shares underlying outstanding stock options will vest in connection with the Acquisition pursuant to the 2016 Plan.

Quantification of Potential Payments and Benefits to our Named Executive Officers

The information below is intended to comply with Item 402(t) of Regulation S-K, which requires disclosure of information about compensation that may be paid or become payable to each “named executive officer” of the Company that is based on, or otherwise relates to, the Acquisition and the Divestiture. Under applicable SEC rules, our named executive officers for this purpose are required to consist of the named executive officers for whom disclosure was required in our most recent Definitive Proxy Statement on Schedule 14A filed with the SEC, who are:

•        Jason Katz, our Chief Executive Officer;

•        Kara Jenny, our Chief Financial Officer; and

•        Adam Zalko, our Senior Vice President.

For a description of our named executive officers’ compensation arrangements in connection with the Acquisition quantified below, see above in “Proposal 1: The Stock Issuance Proposal — The Acquisition — Interests of Certain Persons in the Acquisition” beginning on page 46 of this Proxy Statement. The amounts set forth in the table below represent an estimate of each named executive officer’s compensation that is based on, or otherwise relates to, the Acquisition and the Divestiture and assume the following:

•        each named executive officer remains employed by the Company through the closing of the Acquisition and the Divestiture;

•        the closing of both the Acquisition and the Divestiture occurs on November 21, 2024, the latest practicable date prior to the filing of this Proxy Statement;

•        the value of the vesting acceleration of any equity awards in connection with the Divestiture is calculated assuming that the closing price per share of Company common stock on the date of the closing of the Divestiture was $1.89, which was the average closing price per share of Company common stock as reported on The Nasdaq Capital Market over the first five business days following the first public announcement of the Divestiture on November 8, 2024; and

•        the value of the Transaction-Based Stock Options is calculated assuming that (i) the exercise price of the Transaction-Based Stock Options is $1.78 per share, which was the closing price per share of Company common stock as reported on The Nasdaq Capital Market on November 21, 2024 and (ii) that the closing price per share of Company common stock on the date of the closing of the Acquisition was $4.02, which was the average closing price per share of Company common stock as reported on The Nasdaq Capital Market over the first five business days following the first public announcement of the Acquisition on August 11, 2024.

The amounts reported below are estimated based on multiple assumptions that may or may not actually occur, including the assumptions described above and elsewhere in this Proxy Statement. As a result, the compensation, if any, to be received by a named executive officer may materially differ from the amounts set forth below.

____________

(1)      Represents a Transaction-Based Stock Option to purchase 25,000 shares of the Company’s common stock. This is a single-trigger amount payable in connection with the closing of the Acquisition. The Transaction-Based Stock Option will be granted effective as of three trading days following the date that Company announces the closing of the Acquisition and have an exercise price that is equal to the fair market value of the Company’s common stock on the date of grant. Fifty percent (50%) of the shares underlying the Transaction-Based Stock Option will vest on the date of grant, and the remaining fifty percent (50%) of the shares underlying the Transaction-Based Stock Option will vest on the six-month anniversary of the closing of the Acquisition, provided the recipient is providing services to the Company through each applicable vesting date. The aggregate dollar value reported reflects the value of the shares of Company common stock obtained upon exercise of the Transaction-Based Stock Option by taking the difference between (i) the assumed closing price per share of Company common stock at the closing of the Acquisition and (ii) the assumed exercise price of the Transaction-Based Stock Option, and multiplying it by the number of shares of Company common stock underlying the Transaction-Based Stock Option.

(2)      Represents a Transaction Bonus payable following the closing of the Acquisition. This is a single-trigger amount payable in connection with the closing of the Acquisition. The Transaction Bonuses are payable as follows: (i) fifty percent (50%) on or as soon as practicable following the closing of the Acquisition and (ii) fifty percent (50%) on or as soon as practicable following the filing of the Company’s Annual Report on Form 10-K for the year ending December 31, 2024, provided the recipient is providing services to the Company through each date.

(3)      The aggregate dollar value reported does not include the potential value of the acceleration of Mr. Zalko’s stock option awards (other than the Transaction-Based Stock Option) in connection with the Divestiture, as all of such stock options were out-of-the-money based on the assumed closing price per share of Company common stock at the closing of the Divestiture.

Appraisal Rights

Appraisal rights are not available to our stockholders in connection with the Divestiture.

Accounting Treatment

The disposal of the Transferred Assets represents a strategic shift that will have a material effect on the Company’s operations and financial results. Accordingly, the Divestiture meets the definition of a discontinued operation, as defined by ASC 205-20 — Discontinued Operations (“ASC 205-20”). Beginning in the period in which stockholder approval is received for the Divestiture, the Transferred Assets will be presented as a discontinued operation, including for all comparative prior periods presented in the Company’s financial statements. The difference in the proceeds received and the carrying value of the Transferred Assets, including allocated goodwill, will be recorded as a loss on sale in the period in which stockholder approval for the Divestiture is received.

Vote Required

The Divestiture Proposal requires the affirmative vote of the holders of a majority of the outstanding shares of common stock of the Company entitled to vote on the Divestiture Proposal. Abstentions have the same effect as a vote “against” the Divestiture Proposal. Because all of the proposals currently expected to be voted on at the Special Meeting are non-routine matters, we do not expect there to be any broker non-votes at the Special Meeting.

Board Recommendation

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

The following unaudited pro forma condensed combined balance sheet as of September 30, 2024, and the unaudited pro forma condensed combined statement of operations for the nine months ended September 30, 2024 and for the year ended December 31, 2023 present (i) the combination of the financial information of the Company and NTS after giving effect to the Acquisition and related adjustments described in the accompanying notes to the unaudited pro forma condensed combined financial information and (ii) the disposal of the Transferred Assets in connection with the Divestiture, which Divestiture is a closing condition to the Acquisition. The unaudited pro forma condensed combined financial information is intended to provide you with information about how the Acquisition and the Divestiture might have affected the Company’s historical financial statements.

The unaudited pro forma condensed combined balance sheet as of September 30, 2024 combines the historical balance sheets of the Company and NTS and reflects the deconsolidation of the Transferred Assets as if the Acquisition and the Divestiture had each occurred on September 30, 2024. The unaudited pro forma condensed combined statements of operations for the nine months ended September 30, 2024 and the year ended December 31, 2023 combine the historical statements of operations of the Company and NTS and reflect the Transferred Assets as a discontinued operation for such periods on a pro forma basis as if the Acquisition and the Divestiture had each been consummated on January 1, 2023.

The following unaudited pro forma condensed combined financial information for the nine months ended September 30, 2024 and the year ended December 31, 2023 gives effect to the following:

•        the Divestiture, including the disposal of certain assets and liabilities and operations that comprise the Transferred Assets, and the resulting treatment as a discontinued operation (see Note 6);

•        the Acquisition, inclusive of the following:

•        reclassification of certain NTS historical financial information to conform to Company’s presentation of similar revenues and expenses;

•        other adjustments including expense associated with the allocation of the purchase price to the acquired assets (i.e. amortization expense);

•        the payment of consideration, including the closing cash payment, issuance of the Preferred Stock, and recognition of contingent consideration at fair value; and

•        the related income tax effects of the pro forma adjustments.

The unaudited pro forma condensed combined statements of operations for the year ended December 31, 2022 reflect only the retroactive presentation required under the discontinued operations accounting guidance and, therefore, do not include any other transaction adjustments.

The Acquisition will be accounted for under the acquisition method of accounting in accordance with ASC 805. Under the acquisition method of accounting, the total estimated purchase price will be allocated to the tangible and intangible assets acquired and liabilities assumed from NTS based on a preliminary estimate of their fair value. The preliminary allocation of the estimated purchase price is based upon management’s estimates using information currently available and is subject to revision as a more detailed analysis is completed and additional information on the fair value of the assets acquired and liabilities assumed become available and final appraisals and analyses are completed. Differences between these preliminary estimates and the final acquisition accounting could occur, and such differences could be material. A change in the fair value of the net assets of NTS may change the amount of the purchase price allocable to goodwill and could have a material impact on the accompanying unaudited pro forma condensed combined statements of operations.

The disposal of the Transferred Assets represents a strategic shift that will have a material effect on the Company’s operations and financial results. Accordingly, the Divestiture meets the definition of a discontinued operation, as defined by ASC 205-20. Beginning in the period in which stockholder approval is received for the Divestiture, the Transferred Assets will be presented as a discontinued operation, including for all comparative prior periods presented in the Company’s financial statements. The difference in the proceeds received and the carrying value of the Transferred Assets, including allocated goodwill, will be recorded as a loss on sale in the period in which stockholder approval for the Divestiture is received.

The unaudited pro forma condensed combined financial information has been prepared by management in accordance with Rule 8-05 of Regulation S-X, Pro Forma Financial Information, as amended, and is not necessarily indicative of the financial position or results of operations that would have been realized if the aforementioned transactions had been completed on the dates indicated, nor is it indicative of future operating results or financial position. The pro forma adjustments are based upon available information and certain assumptions that the Company believes are reasonable. Actual results and valuations may differ materially from the assumptions within the accompanying unaudited pro forma condensed combined financial information. In addition, the unaudited pro forma condensed combined financial information does not reflect any revenue enhancements, anticipated synergies, operating efficiencies, or cost savings that may be achieved related to the Acquisition, nor does it reflect any costs or expenditures that may be required to achieve any possible synergies.

The unaudited pro forma condensed combined financial information was derived from, and should be read together with, the accompanying notes to the unaudited pro forma condensed combined financial information, the Company’s historical consolidated financial statements and accompanying notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 and Quarterly Report on Form 10-Q as of and for the nine months ended September 30, 2024 that are incorporated by reference in this Proxy Statement. The unaudited pro forma condensed combined financial information should also be read together with the information under “NTS’s Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Index to NTS Financial Information”.

PALTALK, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF SEPTEMBER 30, 2024
(Amounts in thousands, except per share amounts)

See Notes to Unaudited Pro Forma Condensed Combined Financial Information

PALTALK, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER  30, 2024
(Amounts in thousands, except per share amounts)