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What changed in Crexendo, Inc.'s 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of Crexendo, Inc.'s 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+255 added−241 removedSource: 10-K (2025-03-04) vs 10-K (2024-03-05)

Top changes in Crexendo, Inc.'s 2024 10-K

255 paragraphs added · 241 removed · 212 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeThe information below is organized in accordance with our two reportable segments. Segment operating income is equal to segment net revenue less segment cost of service revenue, cost of product revenue, sales and marketing, research and development, and general and administrative expenses.
Biggest changeThe information below is organized in accordance with our two reportable segments.
(acquired by Cisco Systems, Inc.) that generally license their software and may now or in the future also host their solutions through the cloud, and their resellers including major carriers and cable companies; · established communications providers that resell on-premise hardware, software, and hosted solutions, such as AT&T, Verizon Communications Inc., Lumen/CenturyLink, Cox, Charter and Comcast Corporation in the United States, TELUS and others in Canada, and BT, Vodafone, and others in the United Kingdom, all of whom have significantly greater resources than us and do now or may in the future also develop and/or host their own or other solutions through the cloud; · other cloud companies such as 8x8, Inc., RingCentral, Inc., Amazon.com, Inc., DialPad, Inc., Fusion, Fuze (now part of 8x8), Sangoma (acquired Star2Star), Intermedia.net, Inc., OOMA, Jive Communications, Inc.
(acquired by Cisco Systems, Inc.) that generally license their software and may now or in the future also host their solutions through the cloud, and their resellers including major carriers and cable companies; · established communications providers that resell on-premise hardware, software, and hosted solutions, such as AT&T, Verizon Communications Inc., Lumen/CenturyLink, Cox, Charter and Comcast Corporation in the United States, TELUS and others in Canada, and BT, Vodafone, and others in the United Kingdom, all of whom have significantly greater resources than us and do now or may in the future also develop and/or host their own or other solutions through the cloud; · other cloud companies such as 8x8, Inc., RingCentral, Inc., Amazon.com, Inc., DialPad, Inc., Fusion, Fuze (now part of 8x8), Sangoma (acquired Star2Star), Intermedia, Inc., OOMA, Jive Communications, Inc.
This platform enables a user, via a single “identity” or telephone number, to access and utilize services and features regardless of how the user is connected to the Internet or cloud, whether it’s from a desktop device or an application on a mobile device.
This platform enables a user, via a single “identity” or telephone number, to access and utilize services and features regardless of how the user is connected to the Internet or cloud, whether it’s from a desktop device or an application on a mobile device or computer.
These features are also available on CrexMo, VIP Mobile, and Snap Mobile which are intelligent mobile application for iPhones and Android smartphones, as well as iPads and Android tablets · Traditional PBX Features such as Busy Lamp Fields, System Hold. 16-48 Port density Analog Device Gateways · Expanded Desktop Device Selection such as Entry Level Phone, Executive Desktop, DECT Phone for roaming users · Advanced Faxing solution such as Cloud Fax (cFax) allowing customers to send and receive Faxes from their Email Clients, Mobile Phones and Desktops without having to use a Fax Machine simply by attaching a file · Web based online portal to administer, manage and provision the system. · Asynchronous communication tools like SMS/MMS, chat and document sharing to keep in pace with emerging communication trends. 2 Table of Contents Many of these services are included in our basic offering to our customers for a monthly recurring fee and do not require a capital expense.
These features are also available on CrexMo, VIP Mobile, and Snap Mobile which are intelligent mobile application for iPhones and Android smartphones, as well as iPads and Android tablets · Traditional PBX Features such as Busy Lamp Fields, System Hold. 16-48 Port density Analog Device Gateways · Expanded Desktop Device Selection such as Entry Level Phone, Executive Desktop, DECT Phone for roaming users · Advanced Faxing solution such as Cloud Fax (cFax) allowing customers to send and receive Faxes from their Email Clients, Mobile Phones and Desktops without having to use a Fax Machine simply by attaching a file · Web based online portal to administer, manage and provision the system. · Asynchronous communication tools like SMS/MMS, chat and document sharing to keep in pace with emerging communication trends. · Video collaboration tools for video conferencing and meeting collaboration. 2 Table of Contents Many of these services are included in our basic offering to our customers for a monthly recurring fee and do not require a capital expense.
Our current functionality includes: · Carrier Grade with Geo-Redundant Reliability · Scalability to support communications service providers of all sizes · Video Conferencing and Collaboration ○ Webinars ○ Scheduling ○ Meeting Recordings ○ Content/Screen Sharing ○ Chat · Multi Tenant Architecture to support multiple resellers, agents and retail clients · Contact Center as a Service (CCaaS) ○ All-in-One Cloud Native Contact Center ○ Workforce Engagement ○ Call Recording ○ Employee Performance Management ○ Quality Assurance & Monitoring ○ Reporting, Analytics & Insights · Unified Communications as a Service (UCaaS) ○ PBX functionality in the Cloud ○ Natively integrated with messaging, team collaboration, meetings and contact center ○ Unified mobile and device experience ○ Full integration with Microsoft Teams ○ HD Audio ○ Call Transcription ○ Sentiment Analysis ○ Customizable Emergency Notifications ○ E911 Dynamic Routing ○ Cradle to Grave Reporting 4 Table of Contents · Infrastructure as a Service ○ Eliminate CAPEX and startup costs ○ Slash time to market with immediacy of HW, resources, and expertise ○ Client’s own SNAPsolution running in redundant Top-tier data centers both in the US and Europe ○ Public vs Private Network Separation ○ Multi-Layer Network Security ○ Access Control Tracking and Change Control Procedures ○ Offloads operations, upgrade and maintenance to Crexendo ○ Disaster recovery and business continuity ○ Operational flexibility with on-demand scaling ○ 4 “9”s service uptime reliability RESEARCH AND DEVELOPMENT We invested $4,860 and $3,955 for the years ended December 31, 2023 and 2022, respectively, in the research and development of our technologies and data centers.
Our current functionality includes: · Carrier Grade with Geo-Redundant Reliability · Scalability to support communications service providers of all sizes · Video Conferencing and Collaboration ○ Webinars ○ Scheduling ○ Meeting Recordings ○ Content/Screen Sharing ○ Chat · Multi Tenant Architecture to support multiple resellers, agents and retail clients · Contact Center as a Service (CCaaS) ○ All-in-One Cloud Native Contact Center ○ Workforce Engagement ○ Call Recording ○ Employee Performance Management ○ Quality Assurance & Monitoring ○ Reporting, Analytics & Insights · Unified Communications as a Service (UCaaS) ○ PBX functionality in the Cloud ○ Natively integrated with messaging, team collaboration, meetings and contact center ○ Unified mobile and device experience ○ Full integration with Microsoft Teams ○ HD Audio ○ Call Transcription ○ Sentiment Analysis ○ Customizable Emergency Notifications ○ E911 Dynamic Routing ○ Cradle to Grave Reporting 4 Table of Contents · Infrastructure as a Service ○ Eliminate CAPEX and startup costs ○ Slash time to market with immediacy of HW, resources, and expertise ○ Client’s own SNAPsolution running in redundant Top-tier data centers both in the US and Europe ○ Public vs Private Network Separation ○ Multi-Layer Network Security ○ Access Control Tracking and Change Control Procedures ○ Offloads operations, upgrade and maintenance to Crexendo ○ Disaster recovery and business continuity ○ Operational flexibility with on-demand scaling ○ 5 “9”s service uptime reliability RESEARCH AND DEVELOPMENT We invested $5,552 and $4,860 for the years ended December 31, 2024 and 2023, respectively, in the research and development of our technologies and data centers.
The synergies between Web and Telecommunication protocols such as TCP/IP, HTTP, XML, SIP and innovations in computing, load balancing, redundancy and high availability of Web and Telecommunications technologies offers us a unique advantage in delivering these services to our customers seamlessly from our data center. Our Cloud Telecommunications technology is continuously being enhanced with additional features and software functionality.
The synergies between Web and Telecommunication protocols such as TCP/IP, HTTP, XML, SIP and innovations in computing, load balancing, redundancy and high availability of Web and Telecommunications technologies offers us a unique advantage in delivering these services to our customers seamlessly from our data centers. Our Cloud Telecommunications technology is continuously being enhanced with additional features and software functionality.
When we provide a free trial period, we do not begin to recognize recurring revenue until the trial period has ended and the customer has been billed for the services. 1 Table of Contents We generate software license revenue from the sale of perpetual software licenses, term-based software licenses that expire, and Software-as-a-Service ("SaaS") based software which are referred to as subscription arrangements.
When we provide a free trial period, we do not begin to recognize recurring revenue until the trial period has ended and the customer has been billed for the services. 1 We generate software license revenue from the sale of perpetual software licenses, term-based software licenses that expire, and Software-as-a-Service ("SaaS") based software which are referred to as subscription arrangements.
These services are rendered through a variety of devices and communication solutions for businesses using user interfaces such as a Crexendo branded desktop phones and/or mobile and desktop applications. Some examples of mobile devices are Android cell phones, iPhones, iPads or Android tablets.
These services are rendered through a variety of devices and communication solutions for businesses using user interfaces such as a Crexendo branded and third party desktop phones and/or mobile and desktop applications. Some examples of mobile devices are Android cell phones, iPhones, iPads or Android tablets.
Our current functionality includes: · High-end desktop telephony devices such as Gigabit, PoE, 6 Line Color Phone with 10 programmable buttons and lower end Monochrome 2 Line wall mountable device. · Basic Business Telephony Features such as those offered in a traditional PBX systems like extension dialing, Direct Inward Dialing (DID), Hold/Resume, Music-On-Hold, Call Transfer(Attended and Unattended), Conferencing, Local, Long Distance, Toll-Free and International Dialing, Voicemail, Auto-Attendant and traditional faxing. · Advanced telephony features such as Call Park, Call Pickup, Paging (through the phones), Overhead paging, Call Recording. · Call Center Functionality such as Agent Log In/Log Out, Whisper, Barge and Call center reporting. · Unified Communications features like Simultaneous Ring, Sequential Ring, Status based Routing (Find-Me-Follow-Me), 10-party instant conference, and Mobile application (CrexMo, VIP Mobile). · Crexendo’s Mobile Application which allows users to place and receive extension calls using Crexendo’s network, transfer and conference other users right from their mobile devices if they were in the office.
Our current functionality includes: · High-end desktop telephony devices such as Gigabit, PoE, Color Phone with programmable buttons and lower end Monochrome 2 phones. · Basic Business Telephony Features such as those offered in a traditional PBX systems like extension dialing, Direct Inward Dialing (DID), Hold/Resume, Music-On-Hold, Call Transfer(Attended and Unattended), Conferencing, Local, Long Distance, Toll-Free and International Dialing, Voicemail, Auto-Attendant and traditional faxing. · Advanced telephony features such as Call Park, Call Pickup, Paging (through the phones), Overhead paging, Call Recording. · Call Center Functionality such as Agent Log In/Log Out, Whisper, Barge Call Recording, and Call center reporting. · Unified Communications features like Simultaneous Ring, Sequential Ring, Status based Routing (Find-Me-Follow-Me), 10-party instant conference, and Mobile application (CrexMo, VIP Mobile). · Crexendo’s Mobile Application which allows users to place and receive extension or external calls using Crexendo’s network, transfer and conference other users right from their mobile devices if they were in the office.
The Company does not typically allow and has no history of accepting material product returns. Customer support includes software updates on a when-and-if-available basis, telephone support, integrated web-based support and bug fixes or patches. Subscription and maintenance support revenue is recognized ratably over the term of the customer support agreement, which is typically one year.
The Company does not typically allow and has no history of accepting material product returns. Customer support includes software updates on a when-and-if-available basis, telephone support, integrated web-based support and bug fixes or patches. Subscription and maintenance support revenue is recognized ratably over the term of the customer support agreement, which is typically one to three years.
Our proprietary technology does not preclude or inhibit competitors from entering our markets. In particular, we anticipate new entrants will attempt to develop competing products and services or new forums for conducting e-commerce and telecommunications services which could be deemed competition.
There are relatively low barriers to entry into our business. Our proprietary technology does not preclude or inhibit competitors from entering our markets. In particular, we anticipate new entrants will attempt to develop competing products and services or new forums for conducting e-commerce and telecommunications services which could be deemed competition.
On January 13, 2015, the Company moved to the OTCQX Marketplace and our ticker symbol was changed to “CXDO”. In November 2016, we were reincorporated as a Nevada corporation. On July 8, 2020, the Company up listed to the Nasdaq Capital Market keeping our ticker symbol “CXDO”.
On January 13, 2015, the Company moved to the OTCQX Marketplace and our ticker symbol was changed to “CXDO”. In November 2016, we were reincorporated as a Nevada corporation. On July 8, 2020, the Company up listed to the Nasdaq Capital Market keeping our ticker symbol “CXDO”. Our principal executive offices are located at 1225 W.
Segment revenue and income/(loss) before income tax benefit/(provision) was as follows (in thousands): Year Ended December 31, 2023 2022 Revenue: Cloud telecommunications services $ 35,152 $ 22,406 Software solutions 18,047 15,148 Consolidated revenue $ 53,199 $ 37,554 Year Ended December 31, 2023 2022 Loss before income tax benefit/(provision): Cloud telecommunications services $ (124 ) $ (3,948 ) Software solutions (140 ) (32,227 ) Loss before income tax $ (264 ) $ (36,175 ) 3 Table of Contents TECHNOLOGY We believe our proprietary implementation of standard Web, IP, Cloud, Mobile and Internet technologies represent a key component of our business model.
Segment revenue and income/(loss) before income tax benefit/(provision) was as follows (in thousands): Year Ended December 31, 2024 2023 Revenue: Cloud telecommunications services $ 37,464 $ 35,152 Software solutions 23,374 18,047 Total revenue $ 60,838 $ 53,199 Year Ended December 31, 2024 2023 Income/(loss) before income tax: Cloud telecommunications services $ 413 $ (124 ) Software solutions 1,476 (140 ) Income/(loss) before income tax $ 1,889 $ (264 ) 3 Table of Contents TECHNOLOGY We believe our proprietary implementation of standard Web, IP, Cloud, Mobile and Internet technologies represent a key component of our business model.
The competitive landscape for our software solutions fall into two main categories, (1) other third party UCaaS platform vendors, such as Cisco, Mitel and Microsoft, and (2) third-party platforms hosted on service provider networks, e.g. 3CX, Ribbon, Avaya, NEC, Unify and Vodia. Additionally, should we determine to pursue acquisition opportunities, we may compete with other companies with similar growth strategies.
The competitive landscape for our software solutions fall into two main categories, (1) other third party UCaaS platform vendors, such as Cisco, Mitel, Microsoft, Ooma, Alianza, and (2) third-party platforms hosted on service provider networks, e.g. 3CX, Ribbon, Avaya, NEC, Unify and Vodia.
Our principal executive offices are located at 1615 S. 52nd Street, Tempe, AZ 85281. The telephone number of our principal executive offices is (602) 714-8500, and our main corporate website is www.crexendo.com.
Washington Street Suite 213, Tempe, AZ 85288. The telephone number of our principal executive offices is (602) 714-8500, and our main corporate website is www.crexendo.com.
EMPLOYEES As of December 31, 2023, we had 182 employees; 182 full-time and 0 part-time, including 9 executives, 45 sales representatives and sales management, 8 in marketing, 29 engineers and IT support, 75 in operations and customer support, 16 in accounting, finance, and legal.
EMPLOYEES As of December 31, 2024, we had 185 employees; 179 full-time and 6 part-time, including 7 executives, 44 sales representatives and sales management, 9 in marketing, 33 engineers and IT support, 77 in operations and customer support, and 15 in accounting, finance, and legal.
Some of these competitors may be larger and have greater financial resources than we do. Competition for these acquisition targets could also result in increased prices of acquisition targets and a diminished pool of companies available for acquisition. There are relatively low barriers to entry into our business.
Additionally, should we determine to pursue acquisition opportunities, we may compete with other companies with similar growth strategies. Some of these competitors may be larger and have greater financial resources than we do. Competition for these acquisition targets could also result in increased prices of acquisition targets and a diminished pool of companies available for acquisition.
ITEM 1. BUSINESS OVERVIEW Crexendo, Inc. is an award-winning premier provider of cloud communication platform and services, video collaboration and managed IT services designed to provide enterprise-class cloud solutions to any size business.
ITEM 1. BUSINESS OVERVIEW Crexendo, Inc. is an award-winning software technology company that is a premier provider of cloud communication platform software and unified communications as a service (UCaaS) offering, including voice, video, contact center, and managed IT services tailored to businesses of all sizes.
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By providing a variety of comprehensive and scalable solutions, we are able to cater to businesses of all sizes on a monthly subscription basis without the need for expensive capital investments, regardless of where their business is in its lifecycle.
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Our cloud communications software solutions currently support over five million end users globally, through an extensive network of over 235 cloud communication platform software subscribers and our direct retail offering.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeIf any of these companies entered our markets in a focused and concentrated fashion, we could lose customers, particularly more sophisticated and financially stable customers. Our UCaaS or cloud telecommunications service competes against established well financed alternative voice communication providers (such as 8x8 and Ring Central), who may provide comparable services at comparable or lower pricing.
Biggest changeOur UCaaS or cloud telecommunications service competes against established well financed alternative voice communication providers (such as 8x8 and Ring Central), who may provide comparable services at comparable or lower pricing. Pricing in the telecommunications industry is very fluid and competitive. Price is often a substantial motivation factor in a customer’s decision to switch to our telephony products and services.
Of particular concern is (1) Impact of Market Downturn on Sales; (2) Impact of Uncertain Capital Markets; (3) Rising Interest Rates and the (4) Impact of Inflation; Those issues, together with other uncertainties based on the economy may cause customers to cease operations, reduce spending by our customers, have customers defer purchase decisions and or reduce spending.
Of particular concern is (1) impact of market downturn on sales; (2) impact of uncertain capital markets; (3) rising interest rates; and (4) the impact of inflation. Those issues, together with other uncertainties based on the economy may cause customers to cease operations, reduce spending by our customers, have customers defer purchase decisions and or reduce spending.
Jurisdictions in which we do not collect sales, use, value added, or similar taxes on VoIP services or other products may assert that such taxes are applicable, which could result in tax assessments, penalties, and interest, and we may be required to collect such taxes in the future.
Jurisdictions in which we do not collect sales, use, value added, or similar taxes on VoIP services or other products may assert that such taxes are applicable, which could result in tax assessments, penalties, and interest, and may be required to collect such taxes in the future.
The growth of our business may require that we strengthen our financial reporting systems and infrastructure if we fail to do so we may not remain in compliance with Section 404 of the Sarbanes-Oxley Act over internal control over financial reporting.
The growth of our business may require that we strengthen our financial reporting systems and infrastructure and if we fail to do so we may not remain in compliance with Section 404 of the Sarbanes-Oxley Act over internal control over financial reporting.
Parties with which Crexendo does business with may experience uncertainty associated with acquisitions and business relationships may be subject to disruption as customers and others may attempt to negotiate changes in existing business relationships or consider entering into business relationships with parties other than Crexendo.
Parties with which Crexendo does business may experience uncertainty associated with acquisitions and business relationships may be subject to disruption as customers and others may attempt to negotiate changes in existing business relationships or consider entering into business relationships with parties other than Crexendo.
Future acquisitions by us could also result in large and immediate write-offs or assumptions of debt and contingent liabilities, any of which may have a material adverse effect on our consolidated financial position, results of operations, and cash flows.
Future acquisitions by us could also result in large and immediate write-offs or assumptions of debt and contingent liabilities, any of which may have a material adverse effect on our consolidated financial position, results of operations, and cash flows.
We maintain a redundant physical infrastructure for disaster recovery. This system does not guarantee continued reliability if a catastrophic event occurs. Despite implementation of network security measures, our servers may be vulnerable to computer viruses, break-ins, and similar disruptions from unauthorized tampering with our computer systems including, but not limited to, denial of service attacks.
We maintain a redundant physical infrastructure for disaster recovery. This system does not guarantee continued reliability if a catastrophic event occurs. Despite the implementation of network security measures, our servers may be vulnerable to computer viruses, break-ins, and similar disruptions from unauthorized tampering with our computer systems including, but not limited to, denial of service attacks.
Many of the largest providers of broadband services, like cable companies and traditional telephone companies, have publicly stated that they will not degrade or disrupt their customers” use of applications and services, like ours. However, there is not guarantee that they will continue to do such.
Many of the largest providers of broadband services, like cable companies and traditional telephone companies, have publicly stated that they will not degrade or disrupt their customers” use of applications and services, like ours. However, there is no guarantee that they will continue to do such.
These employees who acquired the stock may sell their shares on the open market, which may depress our stock price. Sales of a significant number of shares of our common stock in the public market could harm the market price of our common stock. In the NetSapiens transaction the Company issued approximately 4,482,328 stock options to NetSapiens employees.
The NetSapiens employees who acquired the stock may sell their shares on the open market, which may depress our stock price. Sales of a significant number of shares of our common stock in the public market could harm the market price of our common stock. In the NetSapiens transaction the Company issued approximately 4,482,328 stock options to NetSapiens employees.
There may be substantial selling of stock by shareholders who received shares of Crexendo stock in the acquisitions. We expect to continue to undertake acquisitions, mergers or change to our capital structure to expand our business, which may pose risks to our business and dilute the ownership of our existing stockholders.
There may be substantial selling of stock by stockholders who received shares of Crexendo stock in the acquisitions. We expect to continue to undertake acquisitions, mergers or change to our capital structure to expand our business, which may pose risks to our business and dilute the ownership of our existing stockholders.
This variability and unpredictability could result in our failure to meet the expectations of research analysts or investors for any period, which could cause our stock price to decline. We sustained operating losses in 2023 and 2022 and may experience losses in the future.
This variability and unpredictability could result in our failure to meet the expectations of research analysts or investors for any period, which could cause our stock price to decline. We sustained operating losses in 2023 and may experience losses in the future.
We depend on these companies to provide service telecom services, sourcing of Direct Inward Dialing (DID) numbers, porting of numbers and delivering telephone calls from and to endpoints and devices on our network.
We depend on these companies to provide telecom services, sourcing of Direct Inward Dialing (DID) numbers, porting of numbers and delivering telephone calls from and to endpoints and devices on our network.
Unfavorable economic conditions could also amplify other risk factors discussed herein, including, but not limited to, our competitive position and margins. Over the last two years, as a result of the inflationary environment in the U.S., we experienced increases in our direct costs, including electricity and other energy-related costs for our network operations, and transportation and labor costs.
Unfavorable economic conditions could also amplify other risk factors discussed herein, including, but not limited to, our competitive position and margins. Over the last three years, as a result of the inflationary environment in the U.S., we experienced increases in our direct costs, including electricity and other energy-related costs for our network operations, and transportation and labor costs.
In addition, a single protracted service outage or a series of service disruptions, whether due to our services or those of our bandwidth carriers, may result in a sharp increase in customer cancellations. 15 Table of Contents We may not be able to scale our business efficiently or quickly enough to meet our customers’ growing needs, in which case our operating results could be harmed.
In addition, a single protracted service outage or a series of service disruptions, whether due to our services or those of our bandwidth carriers, may result in a sharp increase in customer cancellations. 16 Table of Contents We may not be able to scale our business efficiently or quickly enough to meet our customers’ growing needs, in which case our operating results could be harmed.
We believe we will need to expand our network in order to grow our business. An increasing portion of our revenues are and maybe derived from our network of resellers. We do not have long-term contracts with these resellers, nor do most of our contracts require minimum commitments on the part of resellers.
We believe we will need to expand our network in order to grow our business. An increasing portion of our revenues are and maybe derived from our network of resellers. We do not have long-term contracts with these resellers, nor do most of our contracts require minimum commitment on the part of resellers.
The Service Provider Partners license the core NetSapiens Platform and host it themselves or have us host it on their behalf. The sizing of such a license is dictated by the Service Provider’s capacity requirements and business objectives (e.g. number of customers they plan to service, etc.).
The Service Provider Partners license the core NetSapiens Platform and host it themselves or have us host it on their behalf. The size of such a license is dictated by the Service Provider’s capacity requirements and business objectives (e.g. number of customers they plan to service, etc.).
Interruptions in service from these vendors could also cause failures in our customers’ access to E-911 services and expose us to liability. 16 Table of Contents · Our services providers and partners may experience service interruptions or degradation because of hardware and software defects or malfunctions, computer denial-of-service and other cyberattacks, human error, natural disasters, power losses, disruptions in services, bankruptcy, fraud, military or political conflicts, terrorist attacks, computer viruses or other malware, or other events.
Interruptions in service from these vendors could also cause failures in our customers’ access to E-911 services and expose us to liability. · Our services providers and partners may experience service interruptions or degradation because of hardware and software defects or malfunctions, computer denial-of-service and other cyberattacks, human error, natural disasters, power losses, disruptions in services, bankruptcy, fraud, military or political conflicts, terrorist attacks, computer viruses or other malware, or other events.
We face numerous competitor’s which range in size from diversified global companies with significant research and development resources to small, specialized firms whose narrower product lines may let them be more effective in deploying technical, marketing, and financial resources.
We face numerous competitors which range in size from diversified global companies with significant research and development resources to small, specialized firms whose narrower product lines may let them be more effective in deploying technical, marketing, and financial resources.
We however cannot rely on those laws as there is legal uncertainty as to whether states that have passed such laws have the authority to do so if such laws as they could be interpreted to conflict with the January 4, 2018 order. The U.S.
We however cannot rely on those laws as there is legal uncertainty as to whether states that have passed such laws have the authority to do so if such laws as they could be interpreted to conflict with the January 4, 2018 order.
The investments we have made and will continue to make may not generate the returns that we anticipate, which could adversely impact our financial condition and make it more difficult for us to grow revenue and/or return to GAAP profitability.
The investments we have made and will continue to make may not generate the returns that we anticipate, which could adversely impact our financial condition and make it more difficult for us to grow revenue and/or maintain GAAP profitability.
Announcements, or expectations, as to the introduction of new products and technologies by our competitors or us could cause customers to defer purchases of our existing products, which also could have a material adverse effect on our business, financial condition or operating results. Our Software Solutions division competes against numerous competitors including established well-financed competitors (such as Cisco and Microsoft).
Announcements, or expectations, as to the introduction of new products and technologies by our competitors or us could cause customers to defer purchases of our existing products, which also could have a material adverse effect on our business, financial condition or operating results. Our Software Solutions division competes against numerous competitors including established well-financed competitors.
Mihaylo, who was previously our Chief Executive Officer and former Chairman of the Board of Crexendo, Inc., owns approximately 43% of the outstanding shares of our common stock based on the number of shares outstanding as of December 31, 2023. Mr.
Mihaylo, who was previously our Chief Executive Officer and former Chairman of the Board of Crexendo, Inc., owns approximately 43% of the outstanding shares of our common stock based on the number of shares outstanding as of December 31, 2024. Mr.
Any of these occurrences could damage our reputation, adversely impact customer and investor confidence and result in a material adverse effect on the Company’s results of operation or financial condition. 12 Table of Contents Natural disasters, extreme weather conditions, acts of war, terrorist or other hostile acts could cause damage to our infrastructure and result in significant disruptions to our operations.
Any of these occurrences could damage our reputation, adversely impact customer and investor confidence and result in a material adverse effect on the Company’s results of operation or financial condition. Natural disasters, extreme weather conditions, acts of war, terrorist or other hostile acts could cause damage to our infrastructure and result in significant disruptions to our operations.
If we fail to maintain reliable connectivity or performance with our upstream carriers it could then significantly reduce customer demand for our services and damage our business. · A portion of our customer service responses, delivery of calls to and from PSTN and other public telephone VoIP/Wireless service providers and provision of aspects of our E-911 service.
If we fail to maintain reliable connectivity or performance with our upstream carriers it could then significantly reduce customer demand for our services and damage our business. 17 Table of Contents · A portion of our customer service responses, delivery of calls to and from PSTN and other public telephone VoIP/Wireless service providers and provision of aspects of our E-911 service.
If we fail to maintain compliance, we could be unable to report our financial results timely and accurately or prevent fraud. We may incur significant expense and devote substantial management effort toward strengthening our systems.
If we fail to maintain compliance, we could be unable to report our financial results timely and accurately or prevent fraud. We may incur significant expenses and devote substantial management effort toward strengthening our systems.
Our earnings, if any, and cash resources would be materially and adversely affected if we cannot receive the full benefit of the remaining NOL carry-forwards. An ownership change could occur as a result of circumstances that are not within our control. The telecommunications industry is highly competitive.
Our earnings, if any, and cash resources would be materially and adversely affected if we cannot receive the full benefit of the remaining NOL carry-forwards. An ownership change could occur as a result of circumstances that are not within our control. 10 Table of Contents The telecommunications industry is highly competitive.
If some of our stockholders or investors find our common shares less attractive as a result, there may be a less active trading market for our common shares and the market price of our common shares may be more volatile. Our actual operating results may not meet expectations, which could likely cause our stock price to decline.
If some of our stockholders or investors find our common shares less attractive as a result, there may be a less active trading market for our common shares and the market price of our common shares may be more volatile. 23 Table of Contents Our actual operating results may not meet expectations, which could likely cause our stock price to decline.
If our actual performance does not meet or exceed our guidance or expectations, the trading price of our common stock is likely to decline. 22 Table of Contents Our stock price, volatility and acceptance of our securities may be influenced by the research and reports that securities or industry analysts may publish about us or our business.
If our actual performance does not meet or exceed our guidance or expectations, the trading price of our common stock is likely to decline. Our stock price, volatility and acceptance of our securities may be influenced by the research and reports that securities or industry analysts may publish about us or our business.
Our products and services depend on the ability of our users to access the Internet, and many of our services require significant bandwidth to work effectively. Further, customers who access our mobile application Crexmo© (or future application) through their smartphones must have a high-speed connection, to use our services.
Our products and services depend on the ability of our users to access the Internet, and many of our services require significant bandwidth to work effectively. Further, customers who access our mobile applications Crexmo© and Crexendo VIP mobile (or future application) through their smartphones must have a high-speed connection, to use our services.
The trading price and volume of our common stock is likely to be volatile and could fluctuate significantly in response to numerous factors, many of which are beyond our control, including: ● actual or anticipated fluctuations in our results of operations due to, among other things, changes in customer demand, pricing, ordering patterns, and unforeseen operating costs; ● developments, status, and impact on us, our competitors, our constituents, and our suppliers related to supply chain disruptions; ● failure of research analysts to maintain coverage or the ability to get additional coverage, changes in financial estimates or ratings by any research analysts who follow us, or our failure to meet these estimates or the expectations of investors; ● announcements by us or our competitors of significant technical innovations, substantial promotions, price reductions, acquisitions, strategic partnerships, or joint ventures; ● changes in operating performance and stock market valuations of other competitive companies generally, or those in the telecommunication and related services industry; ● cyclical fluctuations; ● price and volume fluctuations in the overall stock market from time to time, including as a result of trends in the economy as a whole; ● actual or anticipated developments in our business or our competitors’ businesses or the competitive landscape generally; ● new laws or regulations or new interpretations of existing laws, or regulations applicable to our business; ● any major change in our management; ● lawsuits threatened or filed against us; and ● other events or factors, including those resulting from war, incidents of terrorism, the COVID-19 pandemic or responses to these events. 21 Table of Contents In addition, the market for telecommunication stocks and the stock markets in general have experienced extreme price and volume fluctuations.
The trading price and volume of our common stock is likely to be volatile and could fluctuate significantly in response to numerous factors, many of which are beyond our control, including: ● actual or anticipated fluctuations in our results of operations due to, among other things, changes in customer demand, pricing, ordering patterns, and unforeseen operating costs; ● developments, status, and impact on us, our competitors, our constituents, and our suppliers related to supply chain disruptions; ● failure of research analysts to maintain coverage or the ability to get additional coverage, changes in financial estimates or ratings by any research analysts who follow us, or our failure to meet these estimates or the expectations of investors; ● announcements by us or our competitors of significant technical innovations, substantial promotions, price reductions, acquisitions, strategic partnerships, or joint ventures; ● changes in operating performance and stock market valuations of other competitive companies generally, or those in the telecommunication and related services industry; ● cyclical fluctuations; ● price and volume fluctuations in the overall stock market from time to time, including as a result of trends in the economy as a whole; ● actual or anticipated developments in our business or our competitors’ businesses or the competitive landscape generally; ● new laws or regulations or new interpretations of existing laws, or regulations applicable to our business; ● any major change in our management; ● lawsuits threatened or filed against us; and ● other events or factors, including those resulting from war, incidents of terrorism, the COVID-19 pandemic or responses to these events.
We face intense competition from traditional telephone companies, wireless companies, cable companies, and alternative voice communication providers. 10 Table of Contents Most traditional wire line and wireless telephone service providers, cable companies, and some UCaaS providers are substantially larger and better capitalized than we are and have the advantage of a large existing customer base.
We face intense competition from traditional telephone companies, wireless companies, cable companies, and alternative voice communication providers. Most traditional wire line and wireless telephone service providers, cable companies, and some UCaaS providers are substantially larger and better capitalized than we are and have the advantage of a large existing customer base.
Geopolitical destabilization could impact global currency exchange rates, supply chains, trade and movement of resources as well as the price of commodities. The United States may impose trade restrictions and tariffs on equipment we use, particularly from China.
Geopolitical destabilization could impact global currency exchange rates, supply chains, trade and movement of resources as well as the price of commodities. The United States may very likely impose trade restrictions and tariffs on equipment we use, particularly from China and Canada.
All of those factors may have a material adverse effect on our business, results of operations, or financial condition. Our quarterly and annual results of operations have fluctuated in the past and may continue to do so in the future.
All of those factors may have a material adverse effect on our business, results of operations, or financial condition. 7 Table of Contents Our quarterly and annual results of operations have fluctuated in the past and may continue to do so in the future.
If there is a determination that we have infringed third-party proprietary rights, we could incur substantial monetary liability and be prevented from using the rights in the future. Risks Related to Our Common Stock Our stock price may be volatile and may decline.
If there is a determination that we have infringed third-party proprietary rights, we could incur substantial monetary liability and be prevented from using the rights in the future. 22 Table of Contents Risks Related to Our Common Stock Our stock price may be volatile and may decline.
Additional dilution will also result as a consequence of shares of common stock sold pursuant to this offering and potential future offerings as well as if outstanding options to acquire shares of our common stock are exercised.
Additional dilution will also result as a consequence of shares of common stock sold pursuant to potential future offerings as well as if outstanding options to acquire shares of our common stock are exercised.
Act of God or terrorism or vandalism or negligence or gross negligence including failure to properly update and maintain infrastructure may result in loss of revenue, profitability and failure to retain and acquire new customers. Our ability to recover from disasters or failures, if and when they occur, is paramount to offering continued service to our existing customers.
Acts of God or terrorism or vandalism or negligence or gross negligence including failure to properly update and maintain infrastructure may result in loss of revenue, profitability and failure to retain and acquire new customers. 13 Table of Contents Our ability to recover from disasters or failures, if and when they occur, is paramount to offering continued service to our existing customers.
ITEM 1A. RISK FACTORS. Public health crises could materially adversely affect our business, financial condition and results of operations. We are subject to risks related to public health crises, such as the COVID-19 pandemic, which had an adverse effect on our operating results in 2022.
ITEM 1A. RISK FACTORS. Public health crises could materially adversely affect our business, financial condition and results of operations. We are subject to risks related to public health crises, such as the COVID-19 pandemic, or other pandemics which may occur. The COVID-19 pandemic had an adverse effect on our operating results in 2022.
Accordingly, even though certain transactions may be in the best interests of other stockholders, this concentration of ownership may harm the market price of our common stock by, among other things, delaying, deferring or preventing a change in control of our Company, impeding a merger, amalgamation, consolidation, takeover or other business combination involving our Company, or discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control of our Company.
Accordingly, even though certain transactions may be in the best interests of other stockholders, this concentration of ownership may harm the market price of our common stock by, among other things, delaying, deferring or preventing a change in control of our Company, impeding a merger, amalgamation, consolidation, takeover or other business combination involving our Company, or discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control of our Company. 24 Table of Contents In addition, sales or other dispositions of our shares by Mr.
Marketing expenditure is an ongoing requirement and will become a larger ongoing requirement of our business as we strive for acquiring new customers. 14 Table of Contents If we do not successfully expand our sales, including our partner channel program and direct sales, we may be unable to increase our sales and that may affect our stock price.
Marketing expenditure is an ongoing requirement and will become a larger ongoing requirement of our business as we strive to acquire new customers. If we do not successfully expand our sales, including our partner channel program and direct sales, we may be unable to increase our sales and that may affect our stock price.
We have taken and continue to take steps to improve our infrastructure to prevent service interruptions. In addition to our physical infrastructures, we have a cloud infrastructure deployment with Amazon Web Services (“AWS”) which is intended to provide continuous service to our customers in the event of a disaster or failure of our physical infrastructures.
We have taken and continue to take steps to improve our infrastructure to prevent service interruptions. In addition to our physical infrastructures, we have cloud infrastructure deployments with Amazon Web Services (“AWS”) and Oracle Cloud Infrastructure (“OCI”) which are intended to provide continuous service to our customers in the event of a disaster or failure of our physical infrastructures.
If some or all of the options were net settled at the same time it could negatively affect the stock price for shares of the Company. There is no guarantee that Crexendo and recently acquired companies will fully integrate operations or. failure to properly manage the acquisitions could impact our stock price and our future business and financial results.
If some or all of the options were exercised in a net settlement exercise at the same time, it could negatively affect the stock price for shares of the Company. There is no guarantee that Crexendo and recently acquired companies will fully integrate operations or failure to properly manage the acquisitions could impact financial results and our stock price.
Our ability to use our net operating loss carry-forwards may be reduced in the event of an ownership change and could adversely affect our financial results. As of December 31, 2023, we had net operating loss (“NOL”) carry-forwards of approximately $21,480.
Our ability to use our net operating loss carry-forwards may be reduced in the event of an ownership change and could adversely affect our financial results. As of December 31, 2024, we had net operating loss (“NOL”) carry-forwards of approximately $17,372.
We maintain credit card and other personal information in our systems. Due to the sensitive nature of retaining such information we have implemented policies and procedures to preserve and protect our data and our customers’ data against loss, misuse, corruption, misappropriation caused by systems failures, unauthorized access, or misuse.
Due to the sensitive nature of retaining such information we have implemented policies and procedures to preserve and protect our data and our customers’ data against loss, misuse, corruption, misappropriation caused by systems failures, unauthorized access, or misuse.
We have integrated most of the operations from the NetSapiens acquisition, we are beginning to see the efficiencies from combining the operations, there is no guarantee however that those efficiencies will fully materialize.
We have integrated most of the operations from the NetSapiens acquisition, we are beginning to see the efficiencies from combining the operations, there is no guarantee however that those efficiencies will fully materialize. Post-Acquisition Integration Risks of new Acquisitions.
Our business, revenues and profitability are impacted by global macroeconomic conditions. Our success is affected by general economic and market conditions, including, among others, inflation rate fluctuations, interest rates, supply chain constraints, lower consumer confidence, volatile equity capital markets, tax rates, economic uncertainty, political uncertainty, changes in laws, and trade barriers and sanctions.
Our success is affected by general economic and market conditions, including, among others, inflation rate fluctuations, trade wars, interest rates, supply chain constraints, lower consumer confidence, volatile equity capital markets, tax rates, economic uncertainty, political uncertainty, changes in laws, and trade barriers and sanctions.
If the options shares were converted in a “lnet settlement exercise” there would be considerable cost associated with the tax payments which would be borne by the Company which could substantially affect results negatively which in turn could negatively affect the stock prices for shares of the Company.
If the stock options were converted in a “net settlement exercise” there would be considerable cost associated with the tax payments which would be borne by the Company which could negatively affect our cash balance, which in turn could negatively affect the stock prices for shares of the Company.
On January 4, 2018, the FCC, released an order that largely repeals rules that the FCC had in place which prevented broadband internet access providers from degrading or otherwise disrupting a broad range of services provisioned over consumers’ and enterprises’ broadband internet access lines.
On January 4, 2018, the FCC, released an order that largely repeals rules that the FCC had in place which prevented broadband internet access providers from degrading or otherwise disrupting a broad range of services provisioned over consumers’ and enterprises’ broadband internet access lines. The order was recently found by a Court to be defective and invalidated.
We are required to comply with certain rules and regulations of the FCC regarding safety standards. Standards are continuously being modified and replaced. As standards evolve, we may be required to modify our existing products or develop and support new versions of our products.
The acceptance of telecommunications services is dependent upon our meeting certain industry standards. We are required to comply with certain rules and regulations of the FCC regarding safety standards. Standards are continuously being modified and replaced. As standards evolve, we may be required to modify our existing products or develop and support new versions of our products.
We collect personal and credit card information from our customers and employees could misuse this information. The PCI Data Security Standard (“PCI DSS”) is a specific set of comprehensive security standards required by credit card brands for enhancing payment account data security, including but not limited to requirements for security management, policies, procedures, network architecture, and software design.
The PCI Data Security Standard (“PCI DSS”) is a specific set of comprehensive security standards required by credit card brands for enhancing payment account data security, including but not limited to requirements for security management, policies, procedures, network architecture, and software design. We maintain credit card and other personal information in our systems.
The Supreme Court’s Wayfair decision has removed a significant impediment to the enactment and enforcement of these laws, and it is possible that states may seek to tax out-of-state sellers on sales that occurred in prior tax years, which could create additional administrative burdens for us, put us at a competitive disadvantage if such states do not impose similar obligations on our competitors, and decrease our future sales, which would adversely impact our business, financial condition, and results of operations. 20 Table of Contents We incur increased costs and demands on management as a result of compliance with laws and regulations applicable to public companies, which could harm our future operating results.
The Supreme Court’s Wayfair decision has removed a significant impediment to the enactment and enforcement of these laws, and it is possible that states may seek to tax out-of-state sellers on sales that occurred in prior tax years, which could create additional administrative burdens for us, put us at a competitive disadvantage if such states do not impose similar obligations on our competitors, and decrease our future sales, which would adversely impact our business, financial condition, and results of operations.
In addition, sales or other dispositions of our shares by Mr. Mihaylo may depress our stock price. Sales of a significant number of shares of our common stock in the public market could harm the market price of our common stock.
Mihaylo may depress our stock price. Sales of a significant number of shares of our common stock in the public market could harm the market price of our common stock.
Notwithstanding the results of this assessment there can be no assurance that payment card brands will not request further compliance assessments or set forth additional requirements to maintain access to credit card processing services, which could incur substantial additional costs and could have a material adverse effect on our business. 19 Table of Contents Our ability to offer services outside the U.S. is subject to different regulations which may be unknown and uncertain.
Notwithstanding the results of this assessment there can be no assurance that payment card brands will not request further compliance assessments or set forth additional requirements to maintain access to credit card processing services, which could incur substantial additional costs and could have a material adverse effect on our business.
While we do not currently provide services in countries where compliance would be required and are therefore not required to be compliant, if we did provide those services or otherwise were required to become complaint, implementation of and compliance with these laws and regulations may be more costly or take longer than we anticipate, or could otherwise adversely affect our business operations, which could negatively impact our financial position or cash flows. 18 Table of Contents Additionally, media coverage of data breaches has escalated, in part because of the increased number of enforcement actions, investigations, and lawsuits.
While we do not currently provide services in countries where compliance would be required and are therefore not required to be compliant, if we did provide those services or otherwise were required to become complaint, implementation of and compliance with these laws and regulations may be more costly or take longer than we anticipate, or could otherwise adversely affect our business operations, which could negatively impact our financial position or cash flows.
In addition, governmental agencies such as the Securities and Exchange Commission (“SEC”), Internal Revenue Service (“IRS”), Federal Trade Commission (“FTC”), Federal Communication Commission (“FCC”) and state taxing authorities may conclude that we have violated federal laws, state laws or other rules and regulations, and we could be subject to fines, penalties or other actions that could adversely impact our financial results or our ability to conduct business. 17 Table of Contents Our telecommunications services are required to comply with industry standards, FCC regulations, privacy laws as well as certain state and local jurisdiction specific regulations.
In addition, governmental agencies such as the Securities and Exchange Commission (“SEC”), Internal Revenue Service (“IRS”), Federal Trade Commission (“FTC”), Federal Communication Commission (“FCC”) and state taxing authorities may conclude that we have violated federal laws, state laws or other rules and regulations, and we could be subject to fines, penalties or other actions that could adversely impact our financial results or our ability to conduct business.
Barriers to entry into many of our businesses are low and many of the areas in which we compete evolve rapidly with changing and disruptive technologies, shifting user needs, and frequent introductions of new products and services. Our ability to remain competitive depends on our success in making innovative products, devices, and services that appeal to businesses and consumers.
Barriers to entry into many of our businesses are low and many of the areas in which we compete evolve rapidly with changing and disruptive technologies, shifting user needs, and frequent introductions of new products and services.
We must acquire new customers on an ongoing basis to maintain and increase our customers and revenues while the significant costs to acquire new customers may reduce our profitability. We will have to acquire new customers in order to increase revenues. We incur significant costs to acquire new customers, and those costs are an important factor in determining our profitability.
We will have to acquire new customers in order to increase revenues. We incur significant costs to acquire new customers, and those costs are an important factor in determining our profitability.
We are planning to migrate most of Crexendo’s customers to the Crexendo Software Solutions communication platform, failure to do that efficiently and properly may impact our business revenue and stock price. We are continuing the process of moving certain Crexendo customers to the Crexendo Software Solutions communication platform while retaining some customers on the Crexendo Ride the Cloud® system.
We are planning to migrate most of Crexendo’s customers to the Crexendo Software Solutions communication platform, failure to do that efficiently and properly may impact our business revenue and stock price.
As additional shares of our common stock become available for resale in the public market, the supply of our common stock will increase, which could result in a decrease in the market price of our common stock. 23 Table of Contents Some of the provisions of our articles of incorporation bylaws and executive contracts could make it more difficult for a third party to acquire us, even if doing so might be beneficial to our stockholders by providing them with the opportunity to sell their shares at a premium to the then market price.
Some of the provisions of our articles of incorporation bylaws and executive contracts could make it more difficult for a third party to acquire us, even if doing so might be beneficial to our stockholders by providing them with the opportunity to sell their shares at a premium to the then market price.
Fluctuations in the value of the U.S. dollar versus foreign currencies may impact our operating results. Chinese Yuan, and other international currencies may be adversely affected in the future due to changes in foreign currency exchange rates. We cannot be certain that we will be able to achieve or maintain operating profitability in the future.
Fluctuations in the value of the U.S. dollar versus foreign currencies may impact our operating results. Chinese Yuan, and other international currencies may be adversely affected in the future due to changes in foreign currency exchange rates. Regulatory Risks in International Expansion .
In the past, stockholders have instituted securities class action litigation following periods of market volatility. If we were to become involved in securities litigation, it could subject us to substantial costs, divert resources and the attention of management from our business and adversely affect our business, financial condition, and results of operations. Our securities have been thinly traded.
If we were to become involved in securities litigation, it could subject us to substantial costs, divert resources and the attention of management from our business and adversely affect our business, financial condition, and results of operations.
Personal data is increasingly subject to legal and regulatory protections around the world, which vary widely in approach and which possibly conflict with one another.
We collect, process, store, use, and transmit personal data on a daily basis. Personal data is increasingly subject to legal and regulatory protections around the world, which vary widely in approach and which possibly conflict with one another.
Taxing authorities may successfully assert that we should have collected or in the future should collect sales and use, value added, or similar taxes, and any such assessments could adversely affect our business, financial condition, and results of operations.
We cannot predict how this issue will be resolved or its impact on our business at this time. 21 Table of Contents Taxing authorities may successfully assert that we should have collected or in the future should collect sales and use, value added, or similar taxes, and any such assessments could adversely affect our business, financial condition, and results of operations.
Additional funds may not be available on terms that are favorable to us and, in the case of equity financings, may result in dilution to our stockholders.
In addition, the financing of any acquisition may require us to raise additional funds through public or private sources. Additional funds may not be available on terms that are favorable to us and, in the case of equity financings, may result in dilution to our stockholders.
For us to continue to competitively compete with other platform providers we must continue to innovate, including providing applications for our platform and ensure that these applications have high quality, security, customer appeal, and value.
For us to continue to competitively compete with other platform providers we must continue to innovate, including providing applications for our platform and ensure that these applications have high quality, security, customer appeal, and value. Efforts to compete with competitors’ content and application marketplaces may increase our cost of revenue and lower our margins and profits.
As a result, these competitors may have greater credibility with our existing and potential customers. Our competitors may also offer bundled service arrangements that present a more differentiated or better integrated product to customers.
Many of our current and potential competitors have longer operating histories, significantly greater resources and brand awareness, and a larger base of customers than we have. As a result, these competitors may have greater credibility with our existing and potential customers. Our competitors may also offer bundled service arrangements that present a more differentiated or better integrated product to customers.
An important element of our business model, particularly relating to our NetSapiens software platform and the Software Solutions division has been to create a software platform from which our licensees can add their own solutions, license software to add to their solutions or tailor the solution to achieve their specific needs.
Our ability to remain competitive depends on our success in making innovative products, devices, and services that appeal to businesses and consumers. 11 Table of Contents An important element of our business model, particularly relating to our NetSapiens software platform and the Software Solutions division has been to create a software platform from which our licensees can add their own solutions, license software to add to their solutions or tailor the solution to achieve their specific needs.
The shift to a subscription model may initially cause quarterly revenue to be reduced during the transition period but it is expected to increase total contract value and provide a more predictable revenue model on a go-forward basis.
If the shift to a subscription model becomes pronounced, it may initially cause quarterly revenue to be reduced during the transition period, but it is expected to increase total contract value and provide a more predictable revenue model on a go-forward basis. The Managed Service Provider Industry is highly competitive. We face intense competition from both large and regional providers.
As a public company we incur significant legal, accounting, and other expenses, including costs associated with public company reporting requirements. Our management team and other personnel devote a substantial amount of time complying with SEC, Nasdaq and other public company requirements.
Our management team and other personnel devote a substantial amount of time complying with SEC, Nasdaq and other public company requirements.
Failure to comply with existing laws and any new laws that may become applicable to us may subject us to penalties, increase our operation costs, and may also require us to modify existing products and/or service. The acceptance of telecommunications services is dependent upon our meeting certain industry standards.
Our telecommunications services are required to comply with industry standards, FCC regulations, privacy laws as well as certain state and local jurisdiction specific regulations. Failure to comply with existing laws and any new laws that may become applicable to us may subject us to penalties, increase our operation costs, and may also require us to modify existing products and/or service.
The economy is uncertain, and the Federal Reserve may fail to reduce as is generally believed, its monetary policy and these factors may negatively affect our business. The economy is uncertain, interest rates are still high and rate reductions are uncertain and there is a risk of a recession which may cause substantial disruption in our sales and results.
If Inflation rises the Federal Reserve may not continue to reduce rates any further or may raise them and these factors may negatively affect our business. The economy has been strong; however, interest rates are still high and rate reductions are uncertain and there is a risk of a recession which may cause substantial disruption in our sales and results.
Our business may be affected by Global economic conditions, including relations between the United States and Foreign Countries . We operate primarily in the United States and we have been expanding our presence in English speaking Europe, Australia, and Canada. While non-US revenue has not been material to our business, that segment of our business has been expanding.
Our business may be affected by Global economic conditions, including relations between the United States and Foreign Countries . We operate primarily in the United States, and we have been expanding our presence on the software solutions business worldwide, particularly in English speaking areas such as; Europe, Australia, and Canada.
Our future operating results, including revenues, expenses, losses and profits, may vary substantially from period to period and may be difficult to predict. We have stopped paying a quarterly dividend and there is no guarantee that dividends will be paid in the future. We stopped paying a quarterly dividend in 2023.
Our future operating results, including revenues, expenses, profits and losses may vary substantially from period to period and may be difficult to predict. We stopped paying a quarterly dividend in April 2023, the Company may consider a dividend in the future if there do not appear to be accretive acquisitions in 2025.
We expect to undertake acquisitions, mergers or change to our capital structure to expand our business, which may pose risks to our business and dilute the ownership of our existing stockholders. We may be required to incur debt to fund acquisitions or mergers. As part of our growth strategy, we expect to attempt to acquire or merge with certain businesses.
We may be required to incur debt to fund acquisitions or mergers. As part of our growth strategy, we expect to attempt to acquire or merge with certain businesses.
Managed service is the practice of outsourcing on a proactive basis certain processes and functions intended to improve operations and cut expenses. It simplifies IT operations, increases user satisfaction, and improves service quality while reducing operating costs. Industry requirements, standards, applications, automation, and client needs are changing daily.
Managed Service contains the same risks as detailed in the risk factors including the additional risks detailed herein. Managed service is the practice of outsourcing on a proactive basis certain processes and functions intended to improve operations and cut expenses. It simplifies IT operations, increases user satisfaction, and improves service quality while reducing operating costs.
If small and medium-sized businesses experience financial hardship as a result of a weak economy, industry consolidation, or any other reason, the overall demand for our subscriptions could be materially and adversely affected.
If small and medium-sized businesses experience financial hardship as a result of a weak economy, industry consolidation, or any other reason, the overall demand for our subscriptions could be materially and adversely affected. 15 Table of Contents We must acquire new customers on an ongoing basis to maintain and increase our customers and revenues while the significant costs to acquire new customers may reduce our profitability.
In addition to telecommunications services, Allegiant provides Managed IT Services and Support. While those revenues do not represent a significant portion of our overall revenues, the managed services market is a highly competitive industry. Managed Service contains the same risks as detailed in the risk factors including the additional risks detailed herein.
We purchased Allegiant Networks, LLC (“Allegiant”) on November 1, 2022. In addition to telecommunications services, Allegiant provides Managed IT Services and Support. While those revenues do not represent a significant portion of our overall revenues, the managed services market is a highly competitive industry.
If key employees depart, we may have to incur significant costs in identifying, hiring and retaining replacements for departing employees, which could reduce our ability to realize the anticipated benefits of the Merger. 24 Table of Contents Crexendo’s business relationships, including customer relationships, may be subject to disruption due to Acquisitions.
If key employees depart, we may have to incur significant costs in identifying, hiring and retaining replacements for departing employees, which could reduce our ability to realize the anticipated benefits of the Merger. The telecommunications and technology industries face stiff competition for top talent.
We are selling more subscriptions based on a month recurring revenue model and the continued conversion to the subscription model could affect quarterly results. The Software Solutions division sells both perpetual licenses as well as a subscription model with monthly recurring revenue.
The Software Solutions Division previously sold licenses primarily as a “perpetual” license. We are now selling more subscriptions based licenses on a monthly recurring revenue model, how the sale is structured may affect results on a quarter-to-quarter basis. The Software Solutions division sells both perpetual licenses as well as a subscription model with monthly recurring revenue.
These ever-changing factors and our ability to quickly adapt and meet those demands could negatively impact our ability to retain and attract clients. In addition, the rapid adoption of digital transformation and the rush of both large and midmarket providers to address this massive market opportunity creates risk and significant competition.
In addition, the rapid adoption of digital transformation and the rush of both large and midmarket providers to address this massive market opportunity creates risk and significant competition.
We may be at a disadvantage compared with those competitors who have substantially greater resources than us or may otherwise be better positioned to withstand an extended period of downward pricing pressure. Many of our current and potential competitors have longer operating histories, significantly greater resources and brand awareness, and a larger base of customers than we have.
Our competitors may reduce their rates, which may require us to reduce our rates, which would affect our margins and revenues, or otherwise make our pricing non-competitive. We may be at a disadvantage compared with those competitors who have substantially greater resources than us or may otherwise be better positioned to withstand an extended period of downward pricing pressure.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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Biggest changeWhile, we have a comprehensive cybersecurity and compliance program in place as an effort to counter the threats, and while we have not been subject to any cyberattacks that, individually or in the aggregate, have been material to Crexendo's operations or financial condition, there can be no guarantee that Crexendo will not experience such an incident in the future. 26 Table of Contents For more information on the risks from cybersecurity threats that we face, refer to “Risk Factors — Operational Risks — Cyber attacks impacting our networks or systems could have an adverse effect on our business” in Part I, Item 1A of this Annual Report on Form 10-K.
Biggest changeWhile, we have a comprehensive cybersecurity and compliance program in place as an effort to counter the threats, and while we have not been subject to any cyberattacks that, individually or in the aggregate, have been material to Crexendo's operations or financial condition, there can be no guarantee that Crexendo will not experience such an incident in the future.
ITEM 1C. CYBERSECURITY As a technology vendor within hosted services segment, Crexendo understands the importance of cybersecurity and data privacy.
ITEM 1C. CYBERSECURITY As a technology vendor within the hosted services segment, Crexendo understands the importance of cybersecurity and data privacy.
Tabletop exercises are conducted to measure the effectiveness of the plans and any findings are factored in towards further revisions of the plans. Security Awareness – Employee awareness towards potential threats and how to steer clear of any phishing or social engineering attacks, is a critical element that governs efficacy of any cybersecurity measures.
Tabletop exercises are conducted to measure the effectiveness of the plan and any findings are factored in towards further revisions of the plans. Security Awareness – Employee awareness towards potential threats and how to steer clear of any phishing or social engineering attacks, is a critical element that governs efficacy of any cybersecurity measures.
To that end, Crexendo subscribes to periodic security awareness training, and mock tests for all employees and contractors. Employees and contractors are evaluated for timely completion of the trainings, on corresponding quiz scores, and based on how they fare tackling mock phishing emails.
To that end, Crexendo subscribes to periodic security awareness training, and mock tests for all employees and contractors. Employees and contractors are evaluated for timely completion of the training, on corresponding quiz scores, and based on how they fare tackling mock phishing emails.
The team makes sure that implemented SOC2 controls are supported by complementing processes and procedures. Cybersecurity risk is managed thru effective inter-department cooperation towards assessing and remediating risks ranging across corporate IT, software development, software quality process, production network architecture and deployment, and data security/privacy.
The team makes sure that implemented SOC2 controls are supported by complementing processes and procedures. Cybersecurity risk is managed through effective inter-department cooperation towards assessing and remediating risks ranging across corporate IT, software development, software quality process, production network architecture and deployment, and data security/privacy.
Similarly, penetration tests are conducted periodically to expose any vulnerabilities within the deployment environment and/or deployed software; including but not limited to open firewall ports beyond deployment design, use of ciphers deemed insecure etc. 25 Table of Contents Crexendo Information Security Policy defines time periods within which a particular severity (critical v/s major v/s minor) vulnerability needs to be addressed.
Similarly, penetration tests are conducted periodically to expose any vulnerabilities within the deployment environment and/or deployed software; including but not limited to open firewall ports beyond deployment design, use of ciphers deemed insecure etc. Crexendo Information Security Policy defines time periods within which a particular severity (critical v/s major v/s minor) vulnerability needs to be addressed.
Specifically, the company provides hosted Unified Communication as a Service (UCaaS), where the customer base is highly sensitive towards privacy, service quality and service availability. With the growing number of threats from a combination of bad actors, process lapses, human errors, and third-party vulnerabilities, Crexendo is subject to increasing and evolving cybersecurity threats.
Specifically, the company provides hosted Unified Communication as a Service (UCaaS), where the customer base is highly sensitive towards privacy, service quality and service availability. 27 Table of Contents With the growing number of threats from a combination of bad actors, process lapses, human errors, and third-party vulnerabilities, Crexendo is subject to increasing and evolving cybersecurity threats.
Crexendo relies on a number of third-party vendors and contractors in order to provide products and services to its customers as well as to augment the resource pool. On an annual basis, all significant third-party vendors and subservice organizations are assessed for any applicable cybersecurity or service availability risks.
Crexendo relies on several third-party vendors and contractors in order to provide products and services to its customers as well as to augment the resource pool. On an annual basis, all significant third-party vendors and subservice organizations are assessed for any applicable cybersecurity or service availability risks.
Threat/Vulnerability Assessment & Remediation – Third party security advisors have been engaged to periodically execute internal and external vulnerability scans for deployed production and organizational assets to flag any known vulnerabilities within deployed third-party components including but not limited to operating systems, web server software, hypervisor software etc.
Independent service auditors have been engaged to measure the efficacy of implemented controls. 26 Table of Contents Threat/Vulnerability Assessment & Remediation – Third party security advisors have been engaged to periodically execute internal and external vulnerability scans for deployed production and organizational assets to flag any known vulnerabilities within deployed third-party components including but not limited to operating systems, web server software, hypervisor software etc.
Implemented controls cover trust services criteria of security, availability, processing integrity, confidentiality, and privacy. Independent service auditors have been engaged to measure the efficacy of implemented controls.
Implemented controls cover trust services criteria of security, availability, processing integrity, confidentiality, and privacy.
Added
For more information on the risks from cybersecurity threats that we face, refer to “Risk Factors — Operational Risks — Cyber-attacks impacting our networks or systems could have an adverse effect on our business” in Part I, Item 1A of this Annual Report on Form 10-K.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeOur San Diego office space is located at 8910 University Center Lance, Suite 400, San Diego, CA 92122, our Overland Park, Kansas office space is located at 10983 Granada Lane, Suite 300, Overland Park, KS 66211, and our Virginia office space is located at 1875 Campus Commons Drive, Reston, Virginia 20191.
Biggest changeOur San Diego office space is located at 8910 University Center Lance, Suite 400, San Diego, CA 92122, and our Overland Park, Kansas office space is located at 10983 Granada Lane, Suite 300, Overland Park, KS 66211. We maintain tenant fire and casualty insurance on our assets located in these buildings at an amount that we deem adequate.
ITEM 2. PROPERTIES Our corporate office consists of approximately 22,000 square feet of office space located at 1615 South 52 nd Street, Tempe, Arizona 85281. We also have offices located in San Diego, California, Overland Park, Kansas and Reston, Virginia.
ITEM 2. PROPERTIES Our corporate office consists of approximately 15,054 square feet of office space located at 1225 W. Washington Street, Tempe, Arizona 85288. We also have offices located in San Diego, California, and Overland Park, Kansas.
Removed
We maintain tenant fire and casualty insurance on our assets located in these buildings in an amount that we deem adequate.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeThere can be no assurance that the ultimate resolution of these matters will not have a material adverse effect on our business or results of operations.
Biggest changeThere can be no assurance that the ultimate resolution of these matters will not have a material adverse effect on our business or results of operations. ITEM 4. MINE SAFETY DISCLOSURES Not Applicable. 28 Table of Contents PART II
We respond to these inquiries and have generally been successful in addressing the concerns of these persons and entities, without a formal complaint or charge being made, although there is often no formal closing of the inquiry or investigation.
We respond to these inquiries and have generally been successful in addressing the concerns of these officials and authorities, without a formal complaint or charge being made, although there is often no formal closing of the inquiry or investigation.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeDIVIDENDS Our Board of Directors declared the following dividends payable in 2023 and 2022 (in thousands): Date Declared Record Date Dividend Per Share Total Amount Payment Date February 8, 2022 February 14, 2022 $ 0.005 $ 111 February 28, 2022 May 18, 2022 May 30, 2022 0.005 112 June 10, 2022 August 12, 2022 August 23, 2022 0.005 113 September 2, 2022 November 17, 2022 November 28, 2022 0.005 126 December 8, 2022 March 14, 2023 March 31, 2023 0.005 130 April 11, 2023 The declaration of dividends is solely at the discretion of our Board of Directors, which may change or terminate our dividend practice at any time for any reason without prior notice.
Biggest changeDIVIDENDS Our Board of Directors declared the following dividends payable in 2024 and 2023 (in thousands): Date Declared Record Date Dividend Per Share Total Amount Payment Date March 14, 2023 March 31, 2023 $ 0.005 $ 130 April 11, 2023 The declaration of dividends is solely at the discretion of our Board of Directors, which may change or terminate our dividend practice at any time for any reason without prior notice.
Our ticker symbol "IIG" on the New York Stock Exchange was changed to “EXE” on May 18, 2011. On January 13, 2015, the Company moved to the OTCQX Marketplace and our ticker symbol was changed to “CXDO”. On July 8, 2020, the Company up listed to The Nasdaq Stock Market keeping our ticker symbol “CXDO”.
Our ticker symbol "IIG" on the New York Stock Exchange was changed to “EXE” on May 18, 2011. On January 13, 2015, the Company moved to the OTCQX Marketplace and our ticker symbol was changed to “CXDO”. On July 8, 2020, the Company uplisted to The Nasdaq Stock Market keeping our ticker symbol “CXDO”.
On March 14, 2023, our Board of Directors cancelled the quarterly dividend. ISSUER PURCHASES OF EQUITY SEQURITIES None RECENT SALES OF UNREGISTERED SECURITIES None
On March 14, 2023, our Board of Directors cancelled the quarterly dividends. ISSUER PURCHASES OF EQUITY SEQURITIES None RECENT SALES OF UNREGISTERED SECURITIES None
High Low Year Ended December 31, 2023 October to December 2023 $ 5.66 $ 1.54 July to September 2023 2.55 1.49 April to June 2023 2.01 1.24 January to March 2023 2.15 1.54 Year Ended December 31, 2022 October to December 2022 $ 2.83 $ 1.61 July to September 2022 3.28 2.23 April to June 2022 3.71 2.10 January to March 2022 5.18 3.55 SECURITY HOLDERS As of December 31, 2023, there were 170 shareholders of record of our common stock.
High Low Year Ended December 31, 2024 October to December 2024 $ 6.29 $ 4.28 July to September 2024 5.45 3.01 April to June 2024 5.40 2.92 January to March 2024 7.59 4.18 Year Ended December 31, 2023 October to December 2023 $ 5.66 $ 1.54 July to September 2023 2.55 1.49 April to June 2023 2.01 1.24 January to March 2023 2.15 1.54 SECURITY HOLDERS As of December 31, 2024, there were 148 shareholders of record of our common stock.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeOperating Results of our Cloud Telecommunications Services Segment (in thousands): Year Ended December 31, Cloud Telecommunications Services 2023 2022 Service revenue $ 29,668 $ 19,515 Product revenue 5,484 2,891 Total revenue 35,152 22,406 Operating expenses: Cost of service revenue 12,606 6,711 Cost of product revenue 3,331 1,637 Selling and marketing 10,251 7,234 General and administrative 9,275 9,366 Research and development 1,172 1,266 Long-lived asset impairment - 69 Total operating expenses 36,635 26,283 Operating income/(loss) (1,483 ) (3,877 ) Other income/(expense) 1,359 (71 ) Income/(loss) before tax benefit/(provision) $ (124 ) $ (3,948 ) 36 Table of Contents Quarterly Financial Information For the three months ended March 31, June 30, September 30, December 31, Cloud Telecommunications Services 2023 2023 2023 2023 Service revenue $ 7,158 $ 7,308 $ 7,517 $ 7,685 Product revenue 1,225 1,432 1,666 1,161 Total revenue 8,383 8,740 9,183 8,846 Operating expenses: Cost of service revenue 3,044 3,095 3,173 3,294 Cost of product revenue 839 881 923 688 Selling and marketing 2,596 2,504 2,467 2,684 General and administrative 2,784 2,175 2,230 2,086 Research and development 299 291 317 265 Total operating expenses 9,562 8,946 9,110 9,017 Operating income/(loss) (1,179 ) (206 ) 73 (171 ) Other income/(expense) (39 ) (26 ) 1,425 (1 ) Income/(loss) before tax benefit/(provision) $ (1,218 ) $ (232 ) $ 1,498 $ (172 ) For the three months ended March 31, June 30, September 30, December 31, Cloud Telecommunications Services 2022 2022 2022 2022 Service revenue $ 4,398 $ 4,556 $ 4,473 $ 6,088 Product revenue 492 692 760 947 Total revenue 4,890 5,248 5,233 7,035 Operating expenses: Cost of service revenue 1,436 1,438 1,375 2,462 Cost of product revenue 317 372 453 495 Selling and marketing 1,581 1,678 1,704 2,271 General and administrative 2,306 1,993 2,056 3,011 Research and development 304 310 284 368 Long-lived asset impairment - - - 69 Total operating expenses 5,944 5,791 5,872 8,676 Operating loss (1,054 ) (543 ) (639 ) (1,641 ) Other expense (18 ) (17 ) (17 ) (19 ) Loss before tax benefit $ (1,072 ) $ (560 ) $ (656 ) $ (1,660 ) 37 Table of Contents Year Ended December 31, 2023 Compared to Year Ended December 31, 2022 Service Revenue Cloud telecommunications service revenue consists primarily of fees collected for cloud telecommunications services, professional services, interest from sales-type leases, reselling broadband Internet services, managed IT service, and administrative fees.
Biggest changeOperating Results of our Cloud Telecommunications Services Segment (in thousands): Year Ended December 31, Cloud Telecommunications Services 2024 2023 Service revenue $ 31,849 $ 29,668 Product revenue 5,615 5,484 Total revenue 37,464 35,152 Operating expenses: Cost of service revenue 13,087 12,606 Cost of product revenue 3,215 3,331 Selling and marketing 11,564 10,251 General and administrative 8,556 9,275 Research and development 788 1,172 Total operating expenses 37,210 36,635 Income/(loss) from operations 254 (1,483 ) Other income/(expense), net 159 1,359 Income/(loss) before income tax $ 413 $ (124 ) 37 Table of Contents Quarterly Financial Information For the three months ended March 31, June 30, September 30, December 31, Cloud Telecommunications Services 2024 2024 2024 2024 Service revenue $ 7,845 $ 8,067 $ 7,953 $ 7,984 Product revenue 1,295 1,293 1,814 1,213 Total revenue 9,140 9,360 9,767 9,197 Operating expenses: Cost of service revenue 3,109 3,246 3,336 3,396 Cost of product revenue 730 696 1,081 708 Selling and marketing 2,796 2,808 2,976 2,984 General and administrative 2,158 2,232 2,278 1,888 Research and development 269 258 134 127 Total operating expenses 9,062 9,240 9,805 9,103 Income/(loss) from operations 78 120 (38 ) 94 Other income/(expense), net (5 ) 45 64 55 Income/(loss) before income tax $ 73 $ 165 $ 26 $ 149 For the three months ended March 31, June 30, September 30, December 31, Cloud Telecommunications Services 2023 2023 2023 2023 Service revenue $ 7,158 $ 7,308 $ 7,517 $ 7,685 Product revenue 1,225 1,432 1,666 1,161 Total revenue 8,383 8,740 9,183 8,846 Operating expenses: Cost of service revenue 3,044 3,095 3,173 3,294 Cost of product revenue 839 881 923 688 Selling and marketing 2,596 2,504 2,467 2,684 General and administrative 2,784 2,175 2,230 2,086 Research and development 299 291 317 265 Total operating expenses 9,562 8,946 9,110 9,017 Income/(loss) from operations (1,179 ) (206 ) 73 (171 ) Other income/(expense) (39 ) (26 ) 1,425 (1 ) Income/(loss) before income tax $ (1,218 ) $ (232 ) $ 1,498 $ (172 ) Year Ended December 31, 2024 Compared to Year Ended December 31, 2023 Service Revenue Cloud telecommunications service revenue consists primarily of fees collected for cloud telecommunications services, professional services, interest from sales-type leases, reselling broadband Internet services, managed IT service, and administrative fees.
Research and Development Research and development expenses primarily consist of salaries, benefits, bonuses, and share-based compensation, outsourced engineering services related to the development of new cloud telecommunications features and products.
Research and Development Research and development expenses primarily consist of salaries, benefits, bonuses, and share-based compensation, and outsourced engineering services related to the development of new cloud telecommunications features and products.
Operating Activities Cash provided by or used in operating activities is driven by our net loss, adjustments to reconcile to net cash provided by or used in operating activities, the timing of customer collections, as well as the amount and timing of disbursements to our vendors, the amount of cash we invest in personnel, marketing, and infrastructure costs to support the anticipated growth of our business.
Operating Activities Cash provided by or used in operating activities is driven by our net income/(loss), adjustments to reconcile to net cash provided by or used in operating activities, the timing of customer collections, as well as the amount and timing of disbursements to our vendors, the amount of cash we invest in personnel, marketing, and infrastructure costs to support the anticipated growth of our business.
As of December 31, 2023, excluding the gain on the sale of property and equipment, we have three years of cumulative pretax losses and the weight of all other positive and negative evidence, such as forecasts and projections of future pretax income are inherently subjective and require management to make assumption or complex judgments about matters that are inherently uncertain and therefore are not sufficient to overcome the significant negative evidence of a three year lookback cumulative loss position.
As of December 31, 2024, excluding the gain on the sale of property and equipment, we have three years of cumulative pretax losses and the weight of all other positive and negative evidence, such as forecasts and projections of future pretax income are inherently subjective and require management to make assumption or complex judgments about matters that are inherently uncertain and therefore are not sufficient to overcome the significant negative evidence of a three year lookback cumulative loss position.
The process of estimating the fair value of goodwill is subjective and required the Company to make estimates that may significantly impact the outcome of the analysis. A qualitative assessment considers events and circumstances such as macroeconomic conditions, industry and market conditions, cost factors and overall financial performance, as well as company specifications.
The process of estimating the fair value of goodwill is subjective and requires the Company to make estimates that may significantly impact the outcome of the analysis. A qualitative assessment considers events and circumstances such as macroeconomic conditions, industry and market conditions, cost factors and overall financial performance, as well as company specifications.
If after performing this assessment, the Company concluded it is more likely than not that the fair value of the reporting unit is less than its carrying amount, then the Company performed the quantitative test. 33 Table of Contents Under the quantitative test, a goodwill impairment is identified by comparing the fair value of the reporting unit to the carrying amount, including goodwill.
If after performing this assessment, the Company concluded it is more likely than not that the fair value of the reporting unit is less than its carrying amount, then the Company performed the quantitative test. 34 Table of Contents Under the quantitative test, a goodwill impairment is identified by comparing the fair value of the reporting unit to the carrying amount, including goodwill.
Therefore, the sums of quarterly earnings per common share amounts do not necessarily equal the total for the twelve month periods presented. 30 Table of Contents Year Ended December 31, 2023 Compared to Year Ended December 31, 2023 Total Revenue Total revenue consists of service revenue, software solutions revenue and product revenue.
Therefore, the sums of quarterly earnings per common share amounts do not necessarily equal the total for the twelve month periods presented. 31 Table of Contents Year Ended December 31, 2024 Compared to Year Ended December 31, 2023 Total Revenue Total revenue consists of service revenue, software solutions revenue and product revenue.
Software licenses are billed by the number of concurrent sessions a Partner has purchased or subscribes to. Subscription maintenance and support is ongoing and provides for software updates and improvements, support for add-on modules, bug fixes, and other general maintenance items.
Software licenses are billed by the number of concurrent sessions a customer has purchased or subscribes to. Subscription maintenance and support is ongoing and provides for software updates and improvements, support for add-on modules, bug fixes, and other general maintenance items.
Other Income/(Expense) Other income/(expense) primarily relates to interest expense, net foreign exchange gains or losses, and other income and expenses.
Other Income/(Expense) Other income/(expense) primarily relates to net foreign exchange gains or losses and other income and expenses.
OFF BALANCE SHEET ARRANGEMENTS As of December 31, 2023, we are not involved in any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.
OFF BALANCE SHEET ARRANGEMENTS As of December 31, 2024, we are not involved in any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.
The loan agreement has a term of three (3) years with quarterly payments of Ninety-Eight Thousand Three Hundred Eighty-one Dollars ($98,381), including interest at 4.00%, beginning on April 1, 2023. As of December 31, 2023 and 2022, the outstanding balance of the related party note payable was $843 and $1,100, respectively.
The loan agreement has a term of three (3) years with quarterly payments of Ninety-Eight Thousand Three Hundred Eighty-one Dollars ($98,381), including interest at 4.00%, beginning on April 1, 2023. As of December 31, 2024 and 2023, the outstanding balance of the related party note payable was $478 and $843, respectively.
GAAP Net Income to EBITDA to Adjusted EBITDA (Unaudited) Three Months Ended December 31, Year Ended December 31, 2023 2022 2023 2022 (In thousands) (In thousands) U.S.
GAAP Net Income to EBITDA to Adjusted EBITDA (Unaudited, in thousands) Three Months Ended December 31, Year Ended December 31, 2024 2023 2024 2023 (In thousands) (In thousands) U.S.
General and Administrative General and administrative expenses consist of salaries, benefits, bonuses and share-based compensation for executives, administrative personnel, legal, rent, equipment, accounting and other professional services, investor relations, depreciation, amortization of intangibles, and other administrative corporate expenses.
General and Administrative General and administrative expenses consist of salaries, benefits, bonuses and share-based compensation for executives, administrative personnel, legal, rent, equipment, accounting and other professional services, investor relations, depreciation, amortization of intangible assets, and other administrative corporate expenses.
For the year ended December 31, 2023, we recorded additional valuation allowance of $1,603 and for the year ended December 31, 2022, we recorded a valuation allowance release of $1,681. Use of Non-GAAP Financial Measures To evaluate our business, we consider and use non-generally accepted accounting principles (“Non-GAAP”) net income and Adjusted EBITDA as a supplemental measure of operating performance.
For the year ended December 31, 2024, we recorded additional valuation allowance of $635 and for the year ended December 31, 2023, we recorded additional valuation allowance of $1,603. Use of Non-GAAP Financial Measures To evaluate our business, we consider and use non-generally accepted accounting principles (“Non-GAAP”) net income and Adjusted EBITDA as a supplemental measure of operating performance.
Our products and services can be categorized in the following offerings: 28 Table of Contents Cloud Telecommunications Services – Our cloud telecommunications services transmit calls using IP or cloud technology, which converts voice signals into digital data packets for transmission over the Internet or cloud.
Our products and services can be categorized in the following offerings: Cloud Telecommunications Services – Our cloud telecommunications services transmit calls using IP or cloud technology, which converts voice signals into digital data packets for transmission over the Internet or cloud.
The Company estimated the fair value of the reporting unit with an income approach using the discounted cash flow (“DCF”) analysis and the Company also considered a market-based valuation methodology using comparable public company trading values and the Company’s market capitalization.
The Company estimates the fair value of the reporting unit with an income approach using the discounted cash flow (“DCF”) analysis and the Company also considers a market-based valuation methodology using comparable public company trading values and the Company’s market capitalization.
We generate recurring revenue from our cloud telecommunications services, broadband Internet services, managed IT services, software license sales, and infrastructure as a service. Our cloud telecommunications contracts typically have a thirty-six to sixty month term.
We generate recurring revenue from our cloud telecommunications services, broadband Internet services, managed IT services, software license sales, and infrastructure as a service. Our cloud telecommunications contracts typically have a thirty-nine to ninety-month term.
We also believe use of Adjusted EBITDA facilitates investors’ use of operating performance comparisons from period to period, as well as across companies. 31 Table of Contents In our March 5, 2024 earnings press release, as furnished on Form 8-K, we included Non-GAAP net income, EBITDA and Adjusted EBITDA.
We also believe use of Adjusted EBITDA facilitates investors’ use of operating performance comparisons from period to period, as well as across companies. 32 Table of Contents In our March 4, 2025 earnings press release, as furnished on Form 8-K, we included Non-GAAP net income, EBITDA and Adjusted EBITDA.
The contract assets allowance for credit losses is determined based on an assessment of historical collection experience using the loss-rate method as well as consideration of current and future economic conditions and changes in our loss-rate trends.
We continually evaluate the adequacy of the allowance for credit losses and adjust as necessary. The contract assets allowance for credit losses is determined based on an assessment of historical collection experience using the loss-rate method as well as consideration of current and future economic conditions and changes in our loss-rate trends.
Therefore, management determined that it is not more likely than not that we will be able to realize our deferred tax assets, and we have recorded a valuation allowance of $4,782 at December 31, 2023. 34 Table of Contents Product Warranty We provide for the estimated cost of product warranties at the time we recognize revenue.
Therefore, management determined that it is not more likely than not that we will be able to realize our deferred tax assets, and we have recorded a valuation allowance of $5,417 at December 31, 2024. Product Warranty We provide for the estimated cost of product warranties at the time we recognize revenue.
The following table reflects our product revenue for the year ended December 31, 2023, compared to the year ended December 31, 2022: Year Ended December 31, 2023 2022 Dollar Change Percent Change Product revenue $ 5,484 $ 2,891 $ 2,593 90 % Product revenue fluctuates from one period to the next based on timing of installations.
The following table reflects our product revenue for the year ended December 31, 2024, compared to the year ended December 31, 2023: Year Ended December 31, 2024 2023 Dollar Change Percent Change Product revenue $ 5,615 $ 5,484 $ 131 2 % Product revenue fluctuates from one period to the next based on timing of installations.
For the year ended December 31, 2022, quarterly dividends of $0.005 were declared and paid, however we have assumed a 0% dividend yield. 35 Table of Contents We develop an estimate of the number of share-based awards that will be forfeited due to employee turnover.
For the year ended December 31, 2023, one quarterly dividend of $0.005 was declared and paid, however we have assumed a 0% dividend yield for the year ended December 31, 2024. 36 Table of Contents We develop an estimate of the number of share-based awards that will be forfeited due to employee turnover.
The following table reflects our net cash provided by/(used in) operating activities for the year ended December 31, 2023, compared to the year ended December 31, 2022: Year Ended December 31, 2023 2022 Dollar Change Percent Change Net cash provided by/(used in) operating activities $ 3,499 $ (411 ) $ 3,910 951 % The net cash provided by operations was primarily driven by non-cash expenses for depreciation and amortization of $3,573 and share-based compensation of $3,849, a decrease in inventories of $297, a decrease in other assets of $651, and an increase in accounts payable and accrued expenses of $623, offset by our net loss for the year ended December 31, 2023 of $362, the gain on disposal of property and equipment of $1,459, an increase in trade receivables of $164, an increase in contract assets of $109, an increase in equipment financing receivables of $905, an increase in contract costs of $1,473, and a decrease in contract liabilities of $997.
The net cash provided by operations for the year ended December 31, 2023 was primarily driven by non-cash expenses for depreciation and amortization of $3,573 and share-based compensation of $3,849, a decrease in inventories of $297, a decrease in other assets of $651, and an increase in accounts payable and accrued expenses of $623, offset by our net loss for the year ended December 31, 2023 of $362, the gain on disposal of property and equipment of $1,459, an increase in trade receivables of $164, an increase in contract assets of $109, an increase in equipment financing receivables of $905, an increase in contract costs of $1,473, and a decrease in contract liabilities of $997.
Below is a table which displays the Cloud Telecommunications segment revenue backlog as of December 31, 2023 and 2022, which we expect to recognize as revenue within the next thirty-six to sixty months (in thousands): Cloud Telecommunications Services backlog as of December 31, 2023 $ 44,810 Cloud Telecommunications Services backlog as of December 31, 2022 $ 32,016 Cost of Service Revenue Cost of service revenue consists primarily of fees we pay to third-party telecommunications carriers, broadband Internet providers, software providers, costs related to installations, customer support salaries, benefits, bonuses, and share-based compensation.
Below is a table which displays the Cloud Telecommunications segment remaining performance obligations as of December 31, 2024 and 2023, which we expect to recognize as revenue within the next thirty-six to sixty months (in thousands): Cloud Telecommunications Services RPOs as of December 31, 2024 $ 55,369 Cloud Telecommunications Services RPOs as of December 31, 2023 $ 44,810 Cost of Service Revenue Cost of service revenue consists primarily of fees we pay to third-party telecommunications carriers, broadband Internet providers, software providers, costs related to installations, contract labor costs, credit card processing fees, customer support salaries, benefits, bonuses, and share-based compensation.
The following table reflects our net cash provided by financing activities for the year ended December 31, 2023, compared to the year ended December 31, 2022: Year Ended December 31, 2023 2022 Dollar Change Percent Change Net cash provided by/(used in) financing activities $ (2,306 ) $ (54 ) $ (2,252 ) 4170 % Net cash used in financing activities for the year ended December 31, 2023 primarily relates to repayments made on finance leases and notes payable of $2,349, payments of employee tax withholdings related to the net settlement of stock options and RSUs of $264, dividend payments of $130, and repayments on the line of credit of $82, offset by proceeds from notes payable of $278 and cash proceeds from the exercise of stock options of $241.
Net cash used in financing activities for the year ended December 31, 2023 primarily relates to repayments made on finance leases and notes payable of $2,349, payments of employee tax withholdings related to the net settlement of stock options and RSUs of $264, dividend payments of $130, and repayments on the line of credit of $82, offset by proceeds from notes payable of $278 and cash proceeds from the exercise of stock options of $241.
Income Tax Benefit The following table reflects our income tax benefit/(provision) for the year ended December 31, 2023, compared to the year ended December 31, 2022: Year Ended December 31, 2023 2022 Dollar Change Percent Change Income tax benefit/(provision) $ (98 ) $ 762 $ (860 ) -113 % We had an income tax provision of $(98) for the year ended December 31, 2023 compared to an income tax benefit of $762 for the year ended December 31, 2022.
Income Tax Benefit/(Provision) The following table reflects our income tax benefit/(provision) for the year ended December 31, 2024, compared to the year ended December 31, 2023: Year Ended December 31, 2024 2023 Dollar Change Percent Change Income tax benefit/(provision) $ (212 ) $ (98 ) $ (114 ) -116 % We had an income tax provision of $(212) for the year ended December 31, 2024 compared to an income tax provision of $(98) for the year ended December 31, 2023.
We expressly disclaim any obligation to update or alter our forward-looking statements, whether, as a result of new information, future events or otherwise after the date of this document. OVERVIEW Crexendo, Inc. is an award-winning premier provider of cloud communication platform and services, video collaboration and managed IT services designed to provide enterprise-class cloud solutions to any size business.
We expressly disclaim any obligation to update or alter our forward-looking statements, whether, as a result of new information, future events or otherwise after the date of this document. 29 Table of Contents OVERVIEW Crexendo, Inc. is an award-winning software technology company that is a premier provider of cloud communication platform and services, video collaboration and managed IT services tailored to businesses of all sizes.
GAAP Net Income to Non-GAAP Net Income (Unaudited) Three Months Ended December 31, Year Ended December 31, 2023 2022 2023 2022 (In thousands) (In thousands) U.S.
GAAP Net Income to Non-GAAP Net Income (Unaudited, in thousands, except per share and share data) Three Months Ended December 31, Year Ended December 31, 2024 2023 2024 2023 (In thousands) (In thousands) U.S.
We currently have net deferred tax assets consisting of net operating loss carryforwards, tax credit carryforwards and deductible temporary differences. Management periodically weighs the positive and negative evidence to determine if it is more likely than not that some or all of the deferred tax assets will be realized.
Management periodically weighs the positive and negative evidence to determine if it is more likely than not that some or all of the deferred tax assets will be realized.
We recognized impairment losses of $0 and $69 in the Consolidated Statements of Operations for the years ended December 31, 2023 and 2022, respectively. Deferred Taxes Our provision for income taxes is comprised of a current and a deferred portion.
We recognized impairment losses of $0 in the Consolidated Statements of Operations for the years ended December 31, 2024 and 2023, respectively. Deferred Taxes Our provision for income taxes is comprised of a current and a deferred portion. The current income tax provision is calculated as the estimated taxes payable or refundable on tax returns for the current year.
The deferred income tax provision is calculated for the estimated future tax effects attributable to temporary differences and carryforwards using expected tax rates in effect during the years in which the differences are expected to reverse or the carryforwards are expected to be realized.
The deferred income tax provision is calculated for the estimated future tax effects attributable to temporary differences and carryforwards using expected tax rates in effect during the years in which the differences are expected to reverse or the carryforwards are expected to be realized. 35 Table of Contents We currently have net deferred tax assets consisting of net operating loss carryforwards, tax credit carryforwards and deductible temporary differences.
Our November 1, 2022 acquisition of Allegiant Networks, contributed $8,886 of the total increase in service revenue. A substantial portion of Cloud Telecommunications service revenue is generated through thirty-six to sixty month service contracts. Product Revenue Product revenue consists primarily of fees collected from the sale of desktop phone devices, third-party equipment, and device as a service.
A substantial portion of Cloud Telecommunications service revenue is generated through thirty-six to sixty month service contracts. 38 Table of Contents Product Revenue Product revenue consists primarily of fees collected from the sale of desktop phone devices, third-party equipment, and device as a service.
Other Income/(Expense) Other income/(expense) primarily relates to interest expense and net foreign exchange gains or losses, offset by credit card cash back rewards.
Other Income/(Expense) Other income/(expense) primarily relates to interest income, interest expense, net foreign exchange gains or losses, gain on the sale of property and equipment, and credit card cash back rewards.
The following table reflects our service revenue for the year ended December 31, 2023, compared to the year ended December 31, 2022: Year Ended December 31, 2023 2022 Dollar Change Percent Change Software solutions revenue $ 18,047 $ 15,148 $ 2,899 19 % The increase is primarily related to a $2,352 increase in recurring software license and maintenance and support subscriptions an increase in professional services of $307, and an increase in perpetual software license revenue of $240.
The following table reflects our service revenue for the year ended December 31, 2024, compared to the year ended December 31, 2023: Year Ended December 31, 2024 2023 Dollar Change Percent Change Software solutions revenue $ 23,374 $ 18,047 $ 5,327 30 % The increase in software solutions revenue is primarily related to an increase in recurring software license and maintenance and support subscriptions of $3,278, an increase in perpetual software license revenue of $1,420, and an increase in professional services and other revenue of $629.
The following table reflects our service revenue for the year ended December 31, 2023, compared to the year ended December 31, 2022: Year Ended December 31, 2023 2022 Dollar Change Percent Change Service revenue $ 29,668 $ 19,515 $ 10,153 52 % The increase in service revenue is due to an increase in telecommunications services fees of $8,604, an increase in one-time fees, commissions and other of $1,192, an increase in fees, commissions, and other, recognized over time of $191, and an increase in sales-type lease interest of $166.
The following table reflects our service revenue for the year ended December 31, 2024, compared to the year ended December 31, 2023: Year Ended December 31, 2024 2023 Dollar Change Percent Change Service revenue $ 31,849 $ 29,668 $ 2,181 7 % The increase in service revenue is due to an increase in telecommunications services fees of $1,899, an increase in fees, commissions, and other, recognized over time of $235, and an increase in sales-type lease interest of $175, offset by a decrease in one-time fees, commissions and other of $128.
During the year ended December 31, 2023, the Company paid principal and interest of $257 and $38, respectively. 44 Table of Contents RECENT ACCOUNTING PRONOUNCEMENTS For a summary of recent accounting pronouncements and the anticipated effects on our consolidated financial statements, see Note 1 to the consolidated financial statements, which is incorporated by reference herein.
RECENT ACCOUNTING PRONOUNCEMENTS For a summary of recent accounting pronouncements and the anticipated effects on our consolidated financial statements, see Note 1 to the consolidated financial statements, which is incorporated by reference herein.
The following table reflects our total revenue for the year ended December 31, 2023, compared to the year ended December 31, 2022: Year Ended December 31, 2023 2022 Dollar Change Percent Change Total revenue $ 53,199 $ 37,554 $ 15,645 42 % The increase in total revenue is due to an increase in service revenue of $10,153, an increase in software solutions revenue of $2,899, and an increase in product revenue of $2,593.
The following table reflects our total revenue for the year ended December 31, 2024, compared to the year ended December 31, 2023: Year Ended December 31, 2024 2023 Dollar Change Percent Change Total revenue $ 60,838 $ 53,199 $ 7,639 14 % The increase in total revenue is due to an increase in software solutions revenue of $5,327, an increase in service revenue of $2,181, and an increase in product revenue of $131.
Our Cloud Telecommunications service revenue increased 52% or $10,153 to $29,668 for the year ended December 31, 2023 as compared to $19,515 for the year ended December 31, 2022. Our Cloud Telecommunications product revenue increased 90% or $2,593 to $5,484 for the year ended December 31, 2023 as compared to $2,891 for the year ended December 31, 2022.
Our Cloud Telecommunications service revenue increased 7% or $2,181 to $31,849 for the year ended December 31, 2024 as compared to $29,668 for the year ended December 31, 2023. Our Cloud Telecommunications product revenue increased 2% or $131 to $5,615 for the year ended December 31, 2024 as compared to $5,484 for the year ended December 31, 2023.
Backlog Backlog represents the total contract value of all contracts signed, less revenue recognized from those contracts as of December 31, 2023 and 2022. Backlog increased 40%, or $12,794 to $44,810 as of December 31, 2023 as compared to $32,016 as of December 31, 2022.
Remaining Performance Obligations Remaining Performance Obligations (RPOs) represents the total contract value of all contracts signed, less revenue recognized from those contracts as of December 31, 2024 and 2023. RPOs increased 24%, or $10,559 to $55,369 as of December 31, 2024 as compared to $44,810 as of December 31, 2023.
The following table reflects our net cash provided by/(used in) investing activities for the year ended December 31, 2023, compared to the year ended December 31, 2022: Year Ended December 31, 2023 2022 Dollar Change Percent Change Net cash provided by/(used in) investing activities $ 3,700 $ (1,703 ) $ 5,403 317 % Net cash provided by investing activities for the year ended December 31, 2023 primarily relates to the sale of the corporate headquarters located in Tempe, Arizona, which generated $3,792 in proceeds from the sale, offset by the purchases of property and equipment of $92.
The following table reflects our net cash provided by/(used in) investing activities for the year ended December 31, 2024, compared to the year ended December 31, 2023: Year Ended December 31, 2024 2023 Dollar Change Percent Change Net cash provided by/(used in) investing activities $ (27 ) $ 3,700 $ (3,727 ) -101 % Net cash used in investing activities for the year ended December 31, 2024 primarily relates to the purchases of property and equipment of $27.
Financing Activities Cash provided by or used in financing activities is driven by the proceeds from the exercise of options, taxes paid on the net settlement of stock options and RSUs, payments of contingent consideration, proceeds from finance leases and notes payable, repayments made on finance leases and notes payable, proceeds and repayments on line of credit, and proceeds from the issuance of common stock in connection with an offering.
Net cash provided by investing activities for the year ended December 31, 2023 primarily relates to the sale of the corporate headquarters located in Tempe, Arizona, which generated $3,792 in proceeds from the sale, offset by the purchases of property and equipment of $92. 44 Table of Contents Financing Activities Cash provided by or used in financing activities is driven by the proceeds from the exercise of options, taxes paid on the net settlement of stock options and RSUs, payments of contingent consideration, proceeds from notes payable, repayments made on finance leases and notes payable, proceeds and repayments on line of credit, dividend payments, and proceeds from the issuance of common stock in connection with an offering.
General and Administrative General and administrative expenses consist of salaries and benefits for executives, administrative personnel, amortization of intangible asset related to customer lists, legal, rent, equipment, accounting and other professional services, and other administrative corporate expenses.
General and Administrative General and administrative expenses consist of salaries, benefits, bonuses and share-based compensation for executives and administrative personnel, amortization of trademark and trade name intangible assets, legal, rent, equipment, accounting and other professional services, consulting fees and other administrative corporate expenses.
GAAP net income/(loss) $ 61 $ (32,601 ) $ (362 ) $ (35,413 ) Depreciation and amortization 878 885 3,573 2,747 Interest expense 4 21 115 78 Gain on sale of property and equipment - - (1,459 ) - Other, net (42 ) 31,102 (79 ) 31,383 Income tax provision 17 (447 ) 98 (762 ) EBITDA 918 (1,040 ) 1,886 (1,967 ) Acquisition related expenses - 24 1 55 Share-based compensation 737 1,612 3,849 4,374 Adjusted EBITDA $ 1,655 $ 596 $ 5,736 $ 2,462 CRITICAL ACCOUNTING POLICIES AND ESTIMATES The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States.
GAAP net income/(loss) $ 507 $ 61 $ 1,677 $ (362 ) Depreciation and amortization 826 878 3,331 3,573 Interest expense 11 4 42 115 Gain on sale of property and equipment - - - (1,459 ) Other, net (4 ) (44 ) (107 ) (81 ) Income tax provision 112 17 212 98 EBITDA 1,452 916 5,155 1,884 Acquisition related expenses - - - 1 Share-based compensation 709 737 3,002 3,849 Adjusted EBITDA $ 2,161 $ 1,653 $ 8,157 $ 5,734 CRITICAL ACCOUNTING POLICIES AND ESTIMATES The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States.
Loss Before Income Taxes The following table reflects our income/(loss) before income taxes for the year ended December 31, 2023, compared to the year ended December 31, 2022: Year Ended December 31, 2023 2022 Dollar Change Percent Change Loss before income taxes $ (264 ) $ (36,175 ) $ 35,911 99 % The decrease in loss before income taxes is primarily related to an increase in revenue of $15,645, a decrease in operating expenses of $20,058, and an increase in other income of $208.
Income/(loss) Before Income Tax The following table reflects our income/(loss) before income tax for the year ended December 31, 2024, compared to the year ended December 31, 2023: Year Ended December 31, 2024 2023 Dollar Change Percent Change Income/(loss) before income tax $ 1,889 $ (264 ) $ 2,153 816 % The increase in income/(loss) before income tax is primarily related to an increase in revenue of $7,639, offset by an increase in operating expenses of $4,126 and a decrease in other income/(expense) of $1,360.
These extended warranties are sold separately and provide services in addition to assurance that the product will function as expected, including updates and patches. The Company is arranging for these services to be provided by the third-party and is acting as an agent in the transaction and records revenue on a net basis at the time of sale.
In extended warranty transactions, the Company is arranging for these services to be provided by the third-party and is acting as an agent in the transaction and records revenue on a net basis at the time of sale. Allowance for Credit Losses We record an allowance for credit losses in accordance with the Current Expected Credit Loss (“CECL”) model.
The following table reflects our other income/(expense) for the year ended December 31, 2023, compared to the year ended December 31, 2022: Year Ended December 31, 2023 2022 Dollar Change Percent Change Other income/(expense) $ 1,359 $ (71 ) $ 1,430 2014 % The change in other income/(expense) is primarily related to the gain on the sale of our corporate headquarters located in Tempe, Arizona of $1,459 offset by a decrease in other income/(expense) of $29.
The following table reflects our other income/(expense) for the year ended December 31, 2024, compared to the year ended December 31, 2023: Year Ended December 31, 2024 2023 Dollar Change Percent Change Other income/(expense), net $ 159 $ 1,359 $ (1,200 ) -88 % 40 Table of Contents The change in other income/(expense) is primarily from the gain on sale of our corporate office building reported during the year ended December 31, 2023 of $1,459 and a decrease in other income of $3, offset by an increase in interest income of $189 and a decrease in interest expense of $73.
Operating Results of our Software Solutions Segment (in thousands): Year Ended December 31, Software Solutions 2023 2022 Software solutions revenue $ 18,047 $ 15,148 Operating expenses: Cost of software solutions revenue 5,627 5,336 Selling and marketing 4,420 4,491 General and administrative 4,518 3,538 Research and development 3,688 2,689 Goodwill impairment - 32,609 Total operating expenses 18,253 48,663 Operating loss (206 ) (33,515 ) Other income 66 1,288 Loss before tax benefit/(provision) $ (140 ) $ (32,227 ) Quarterly Financial Information For the three months ended March 31, June 30, September 30, December 31, Software Solutions 2023 2023 2023 2023 Software solutions revenue $ 4,108 $ 3,930 $ 4,691 $ 5,318 Operating expenses: Cost of software solutions revenue 1,185 1,293 1,327 1,822 Selling and marketing 1,213 1,109 1,035 1,063 General and administrative 1,213 992 1,079 1,234 Research and development 892 847 959 990 Total operating expenses 4,503 4,241 4,400 5,109 Operating income/(loss) (395 ) (311 ) 291 209 Other income/(expense) 55 22 (52 ) 41 Income/(loss) before tax benefit/(provision) $ (340 ) $ (289 ) $ 239 $ 250 40 Table of Contents For the three months ended March 31, June 30, September 30, December 31, Software Solutions 2022 2022 2022 2022 Software solutions revenue $ 3,268 $ 3,598 $ 3,875 $ 4,407 Operating expenses: Cost of software solutions revenue 1,661 1,131 1,141 1,403 Selling and marketing 1,003 1,093 1,028 1,367 General and administrative 943 764 744 1,087 Research and development - 919 867 903 Goodwill impairment - - - 32,609 Total operating expenses 3,607 3,907 3,780 37,369 Operating income/(loss) (339 ) (309 ) 95 (32,962 ) Other income/(expense) (10 ) (109 ) (167 ) 1,574 Loss before tax benefit $ (349 ) $ (418 ) $ (72 ) $ (31,388 ) Year Ended December 31, 2023 Compared to Year Ended December 31, 2022 Software Solutions Revenue Software solutions revenue consists primarily of software license fees, subscription maintenance and support, professional services, and annual user group meeting fees.
Operating Results of our Software Solutions Segment (in thousands): Software Solutions 2024 2023 Software solutions revenue $ 23,374 $ 18,047 Operating expenses: Cost of software solutions revenue 6,793 5,627 Selling and marketing 4,974 4,420 General and administrative 5,273 4,518 Research and development 4,764 3,688 Total operating expenses 21,804 18,253 Income/(loss) from operations 1,570 (206 ) Other income/(expense), net (94 ) 66 Income/(loss) before income tax $ 1,476 $ (140 ) Quarterly Financial Information For the three months ended March 31, June 30, September 30, December 31, Software Solutions 2024 2024 2024 2024 Software solutions revenue $ 5,146 $ 5,325 $ 5,860 $ 7,043 Operating expenses: Cost of software solutions revenue 1,392 1,445 1,686 2,270 Selling and marketing 1,231 1,150 1,245 1,348 General and administrative 1,138 1,200 1,417 1,518 Research and development 980 1,070 1,339 1,375 Total operating expenses 4,741 4,865 5,687 6,511 Income/(loss) from operations 405 460 173 532 Other income/(expense), net (17 ) (10 ) (5 ) (62 ) Income/(loss) before income tax $ 388 $ 450 $ 168 $ 470 For the three months ended March 31, June 30, September 30, December 31, Software Solutions 2023 2023 2023 2023 Software solutions revenue $ 4,108 $ 3,930 $ 4,691 $ 5,318 Operating expenses: Cost of software solutions revenue 1,185 1,293 1,327 1,822 Selling and marketing 1,213 1,109 1,035 1,063 General and administrative 1,213 992 1,079 1,234 Research and development 892 847 959 990 Total operating expenses 4,503 4,241 4,400 5,109 Income/(loss) from operations (395 ) (311 ) 291 209 Other income/(expense), net 55 22 (52 ) 41 Income/(loss) before income tax $ (340 ) $ (289 ) $ 239 $ 250 41 Table of Contents Year Ended December 31, 2024 Compared to Year Ended December 31, 2023 Software Solutions Revenue Software solutions revenue consists primarily of software license fees, subscription maintenance and support, professional services, and annual user group meeting fees.
These estimates can change significantly from period to period and are reviewed each reporting period to establish the fair value of the contingent liability. Share-Based Compensation We account for our share-based compensation awards using the fair-value method. The grant date fair value was determined using the Black-Scholes-Merton pricing model.
The estimates are highly sensitive to future operating results such as: revenue and adjusted EBITDA. Share-Based Compensation We account for our share-based compensation awards using the fair-value method. The grant date fair value was determined using the Black-Scholes-Merton pricing model.
The trade receivables allowance for credit losses is determined based on an assessment of historical collection experience using the aging schedule method as well as consideration of current and future economic conditions. Trade receivables are written off against the allowance after all collection efforts have been exhausted and management deems the account to be uncollectible.
We utilize the forward looking “expected loss” model to establish an allowance for credit losses for our trade receivables, contract asset, and equipment financing receivables. The trade receivables allowance for credit losses is determined based on an assessment of historical collection experience using the aging schedule method as well as consideration of current and future economic conditions.
The following table reflects our selling and marketing expenses for the year ended December 31, 2023, compared to the year ended December 31, 2022: Year Ended December 31, 2023 2022 Dollar Change Percent Change Selling and marketing $ 4,420 $ 4,491 $ (71 ) -2 % The decrease in selling and marketing expense is primarily related to decrease in marketing consultants costs of $137 and a decrease in annual user group meeting costs of $119, offset by an increase in salaries, benefits, bonuses, and share-based compensation of $160 related to an increase in headcount and expenses for the accrual of annual employee bonuses, and an increase in other selling and marketing costs of $25.
The following table reflects our selling and marketing expenses for the year ended December 31, 2024, compared to the year ended December 31, 2023: Year Ended December 31, 2024 2023 Dollar Change Percent Change Selling and marketing $ 4,974 $ 4,420 $ 554 13 % The increase in selling and marketing expense is primarily related to an increase in commission expense of $436 directly related to the increase in revenue, an increase in marketing materials and trade shows of $215, an increase in sales support software of $90, and an increase in other selling and marketing costs of $16, offset by a decrease in salaries, benefits, bonuses, and share-based compensation of $203 due to the allocation of marketing resources to the Cloud Telecommunications Services segment.
GAAP net income/(loss) $ 61 $ (32,601 ) $ (362 ) $ (35,413 ) Share-based compensation 737 1,612 3,849 4,374 Acquisition related expenses - 24 1 55 Goodwill and long-lived asset impairment - 32,678 - 32,678 Amortization of intangible assets 792 786 3,169 2,435 Non-GAAP net income $ 1,590 $ 2,499 $ 6,657 $ 4,129 Non-GAAP earnings per common share: Basic $ 0.06 $ 0.10 $ 0.26 $ 0.18 Diluted $ 0.06 $ 0.09 $ 0.24 $ 0.16 Weighted-average common shares outstanding: Basic 26,072,529 24,423,030 25,944,748 22,939,514 Diluted 28,314,527 26,633,630 27,792,813 25,783,179 32 Table of Contents Reconciliation of U.S.
GAAP net income/(loss) $ 507 $ 61 $ 1,677 $ (362 ) Share-based compensation 709 737 3,002 3,849 Acquisition related expenses - - - 1 Amortization of intangible assets 755 792 3,028 3,169 Non-GAAP net income $ 1,971 $ 1,590 $ 7,707 $ 6,657 Non-GAAP earnings per common share: Basic $ 0.07 $ 0.06 $ 0.29 $ 0.26 Diluted $ 0.06 $ 0.06 $ 0.26 $ 0.24 Weighted-average common shares outstanding: Basic 27,195,382 26,072,529 26,757,242 25,944,748 Diluted 30,547,245 28,314,527 30,019,359 27,792,813 33 Table of Contents Reconciliation of U.S.
We believe that our trade receivable credit risk is low because of the geographic and industry diversification of our clients and small account balances for most of our clients. We continually evaluate the adequacy of the allowance for credit losses and adjust as necessary.
Trade receivables are written off against the allowance after all collection efforts have been exhausted and management deems the account to be uncollectible. We believe that our trade receivable credit risk is low because of the geographic and industry diversification of our clients and small account balances for most of our clients.
The following table reflects our selling and marketing expenses for the year ended December 31, 2023, compared to the year ended December 31, 2022: Year Ended December 31, 2023 2022 Dollar Change Percent Change Selling and marketing $ 10,251 $ 7,234 $ 3,017 42 % The increase in selling and marketing expense is primarily related to an increase in additional selling and marketing expense of $2,178 contributed by our November 1, 2022 acquisition of Allegiant Networks during the year ended December 31, 2023 and an increase in commission expense of $742 directly related to the increase in revenue, an increase in salaries, benefits, bonuses, and share-based compensation of $60, and an increase in other selling and marketing expenses of $37.
The following table reflects our selling and marketing expenses for the year ended December 31, 2024, compared to the year ended December 31, 2023: Year Ended December 31, 2024 2023 Dollar Change Percent Change Selling and marketing $ 11,564 $ 10,251 $ 1,313 13 % The increase in selling and marketing expense is primarily related to an increase in commission expense of $1,185 directly related to the increase in revenue, an increase in marketing costs of $92, and an increase in other sales and marketing expense of $36.
Net cash used in financing activities in the year ended December 31, 2022, primarily relates to dividend payments of $462, payments of employee tax withholdings related to the net settlement of stock options and RSUs of $290, and repayments made on finance leases and notes payable of $200, offset by cash proceeds from the exercise of stock options of $816 and proceeds from the line of credit of $82.
The following table reflects our net cash provided by financing activities for the year ended December 31, 2024, compared to the year ended December 31, 2023: Year Ended December 31, 2024 2023 Dollar Change Percent Change Net cash provided by/(used in) financing activities $ 1,595 $ (2,306 ) $ 3,901 169 % Net cash provided by financing activities for the year ended December 31, 2024 primarily relates to cash received from the exercise of stock options of $2,370, offset by repayments made on notes payable of $457, the payments of employee tax withholdings from the net settlement of stock options and RSUs of $243, and repayments made on finance leases of $75.
Results of Consolidated Operations The following discussion of financial condition and results of operations should be read in conjunction with the Consolidated Financial Statements and Notes thereto and other financial information included herein this Annual Report. 29 Table of Contents Results of Consolidated Operations (in thousands, except for per share amounts) Year Ended December 31, Consolidated 2023 2022 Service revenue $ 29,668 $ 19,515 Software solutions revenue 18,047 15,148 Product revenue 5,484 2,891 Total revenue 53,199 37,554 Income/(loss) before income taxes (264 ) (36,175 ) Income tax benefit/(provision) (98 ) 762 Net income/(loss) (362 ) (35,413 ) Basic earnings per common share $ (0.01 ) $ (1.54 ) Diluted earnings per common share $ (0.01 ) $ (1.54 ) For the three months ended March 31, June 30, September 30, December 31, Consolidated 2023 2023 2023 2023 Service revenue $ 7,158 $ 7,308 $ 7,517 $ 7,685 Software solutions revenue 4,108 3,930 4,691 5,318 Product revenue 1,225 1,432 1,666 1,161 Total revenue 12,491 12,670 13,874 14,164 Income/(loss) before income taxes (1,558 ) (521 ) 1,737 78 Income tax provision (24 ) (24 ) (33 ) (17 ) Net income/(loss) (1,582 ) (545 ) 1,704 61 Basic earnings per common share (1) $ (0.06 ) $ (0.02 ) $ 0.07 $ 0.00 Diluted earnings per common share (1) $ (0.06 ) $ (0.02 ) $ 0.06 $ 0.00 For the three months ended March 31, June 30, September 30, December 31, Consolidated 2022 2022 2022 2022 Service revenue $ 4,398 $ 4,556 $ 4,473 $ 6,088 Software solutions revenue 3,268 3,598 3,875 4,407 Product revenue 492 692 760 947 Total revenue 8,158 8,846 9,108 11,442 Income/(loss) before income taxes (1,421 ) (978 ) (728 ) (33,048 ) Income tax benefit 201 82 32 447 Net income/(loss) (1,220 ) (896 ) (696 ) (32,601 ) Basic earnings per common share (1) $ (0.05 ) $ (0.04 ) $ (0.03 ) $ (1.33 ) Diluted earnings per common share (1) $ (0.05 ) $ (0.04 ) $ (0.03 ) $ (1.33 ) ——————— (1) Earnings per common share is computed independently for each of the quarters presented.
Results of Consolidated Operations (in thousands, except for per share amounts) Year Ended December 31, Consolidated 2024 2023 Service revenue $ 31,849 $ 29,668 Software solutions revenue 23,374 18,047 Product revenue 5,615 5,484 Total revenue 60,838 53,199 Income/(loss) before income tax 1,889 (264 ) Income tax benefit/(provision) (212 ) (98 ) Net income/(loss) 1,677 (362 ) Basic earnings per common share $ 0.06 $ (0.01 ) Diluted earnings per common share $ 0.06 $ (0.01 ) For the three months ended March 31, June 30, September 30, December 31, Consolidated 2024 2024 2024 2024 Service revenue $ 7,845 $ 8,067 $ 7,953 $ 7,984 Software solutions revenue 5,146 5,325 5,860 7,043 Product revenue 1,295 1,293 1,814 1,213 Total revenue $ 14,286 $ 14,685 15,627 16,240 Income/(loss) before income tax 461 615 194 619 Income tax benefit/(provision) (27 ) (27 ) (46 ) (112 ) Net income/(loss) 434 588 148 507 Basic earnings per common share (1) $ 0.02 $ 0.02 $ 0.01 $ 0.02 Diluted earnings per common share (1) $ 0.01 $ 0.02 $ 0.00 $ 0.02 For the three months ended March 31, June 30, September 30, December 31, Consolidated 2023 2023 2023 2023 Service revenue $ 7,158 $ 7,308 $ 7,517 $ 7,685 Software solutions revenue 4,108 3,930 4,691 5,318 Product revenue 1,225 1,432 1,666 1,161 Total revenue 12,491 12,670 13,874 14,164 Income/(loss) before income tax (1,558 ) (521 ) 1,737 78 Income tax benefit/(provision) (24 ) (24 ) (33 ) (17 ) Net income/(loss) (1,582 ) (545 ) 1,704 61 Basic earnings per common share (1) $ (0.06 ) $ (0.02 ) $ 0.07 $ 0.00 Diluted earnings per common share (1) $ (0.06 ) $ (0.02 ) $ 0.06 $ 0.00 ____________________ (1) Earnings per common share is computed independently for each of the quarters presented.
The year ended December 31, 2022 includes only two months of revenue from the Allegiant Networks acquisition date of November 1, 2022. Software Solutions – Our software solutions segment derives revenues from three primary sources: software licenses, software maintenance support and professional services. Software and services may be sold separately or in bundled packages.
Software Solutions – Our software solutions segment derives revenues from three primary sources: software licenses, software maintenance support and professional services. Software and services may be sold separately or in bundled packages. Generally, contracts with customers contain multiple performance obligations, consisting of software and services.
Below is a table which displays the Software Solutions segment revenue backlog as of December 31, 2023 and 2022, which we expect to recognize as revenue within the next thirty-six months (in thousands): Software Solutions backlog as of December 31, 2023 $ 19,122 Software Solutions backlog as of December 31, 2022 $ 14,830 Selling and Marketing Selling and marketing expenses consist primarily of sales and marketing salaries, benefits, bonuses, commissions, share-based compensation, travel expenses, lead generation services, trade shows, third-party marketing services, the production of marketing materials, UGM costs, and sales support software.
Below is a table which displays the Software solutions segment remaining performance obligations as of December 31, 2024 and 2023, which we expect to recognize as revenue within the next thirty-six months (in thousands): Software solutions RPOs as of December 31, 2024 $ 30,262 Software solutions RPOs as of December 31, 2023 $ 19,122 Cost of Software Solutions Revenue Cost of software solutions revenue consists primarily of salaries, benefits, bonuses, and share-based compensation, amortization expense for developed technologies intangible assets, cost of data center hosting, third-party software, annual user group meeting costs, and outsourced services required to install and support software solutions.
Selling and Marketing Selling and marketing expenses consist primarily of direct and channel sales representative salaries, benefits, bonuses, and share-based compensation, partner channel commissions, amortization of costs to acquire contracts, travel expenses, lead generation services, trade shows, internal and third-party marketing costs, the production of marketing materials, and sales support software.
The following table reflects our cost of product revenue for the year ended December 31, 2024, compared to the year ended December 31, 2023: Year Ended December 31, 2024 2023 Dollar Change Percent Change Cost of product revenue $ 3,215 $ 3,331 $ (116 ) -3 % The decrease is primarily related to a higher margin product mix by eliminating the sale of low margin products. 39 Table of Contents Selling and Marketing Selling and marketing expenses consist primarily of direct and channel sales representative salaries, benefits, bonuses, and share-based compensation, partner channel commissions, amortization of costs to acquire contracts, travel expenses, lead generation services, trade shows, internal and third-party marketing costs, amortization of customer relationship intangible assets, the production of marketing materials, and sales support software.
The following table reflects our research and development expenses for the year ended December 31, 2023, compared to the year ended December 31, 2022: Year Ended December 31, 2023 2022 Dollar Change Percent Change Research and development $ 1,172 $ 1,266 $ (94 ) -7 % 39 Table of Contents The decrease in research and development expenses is primarily related to a decrease in salaries, benefits, bonuses, and share-based compensation of $55 and a decrease in costs for maintenance on our mobile applications and other development costs of $39 due to a reduction in development on our legacy platform as we migrate customers to our new VIP platform.
The following table reflects our research and development expenses for the year ended December 31, 2024, compared to the year ended December 31, 2023: Year Ended December 31, 2024 2023 Dollar Change Percent Change Research and development $ 788 $ 1,172 $ (384 ) -33 % The decrease in research and development expenses is primarily related to the allocation of engineering resources to our Software Solutions segment of $380 as we finalize the migration of our customers to our VIP platform, and a decrease other research and development expenses of $4.
The following table reflects our general and administrative expenses for the year ended December 31, 2023, compared to the year ended December 31, 2022: Year Ended December 31, 2023 2022 Dollar Change Percent Change General and administrative $ 4,518 $ 3,538 $ 980 28 % The increase in general and administrative expenses is primarily related to the reclassification of salaries and benefits from the Cloud Telecommunication Services segment of $682 after carefully reviewing expenses that related to the Software Solutions segment, an increase in salaries, benefits, bonuses, and share-based compensation of $300 related to salary increases and expense for accrual of annual employee bonuses, an increase in depreciation expense of $29, and an increase in other general and administrative expenses of $62, offset by a decrease in general and administrative expenses relating to the reclassification of research and development expenses out of general and administrative expenses after carefully reviewing expenses that qualify of $93.
The following table reflects our research and development expense for the year end December 31, 2024, compared to the year ended December 31, 2023: Year Ended December 31, 2024 2023 Dollar Change Percent Change Research and development $ 4,764 $ 3,688 $ 1,076 29 % The increase in research and development expenses is primarily related to an increase in salaries, benefits, bonuses, and share-based compensation of $782 due to the allocation of resources from the Cloud Telecommunications Services segment as we finalize the migration of our customers to the VIP platform, and an increase in outsourced engineering services expenses of $306, offset by a decrease in other research and development expenses of $12.
We believe that our operations along with existing liquidity sources will satisfy our cash requirements for at least the next 12 months. On November 1, 2022, the Company acquired 100% of the issued and outstanding shares of Allegiant Networks, a provider of telecommunications products, services, and solutions in Kansas and Missouri.
We believe that our operations along with existing liquidity sources will satisfy our cash requirements for at least the next 12 months.
The following table reflects our general and administrative expenses for the year ended December 31, 2023, compared to the year ended December 31, 2022: Year Ended December 31, 2023 2022 Dollar Change Percent Change General and administrative $ 9,275 $ 9,366 $ (91 ) -1 % The decrease in general and administrative expenses is primarily related to a decrease in administrative salaries, benefits, bonuses, and share-based compensation of $1,882 related to a decrease in share-based compensation and the reclassification of salary, wages, and benefits to the Software Solutions segment, offset by an increase in expenses for the accrual of annual employee bonuses, a decrease in telecommunication fees of $134, and a decrease in other general and administrative expenses of $40, offset by an increase in additional general and administrative expense of $1,965 contributed by our November 1, 2022 acquisition of Allegiant Networks during the year ended December 31, 2023.
The following table reflects our general and administrative expenses for the year ended December 31, 2024, compared to the year ended December 31, 2023: Year Ended December 31, 2024 2023 Dollar Change Percent Change General and administrative $ 8,556 $ 9,275 $ (719 ) -8 % The decrease in general and administrative expenses is primarily related to a decrease in executive and administrative salaries, benefits, bonuses, and share-based compensation of $1,010 primarily due to a decrease in share-based compensation of $733 and an allocation of costs to the Software Solutions segment of $203, and a decrease in other general and administrative expenses of $32, offset by an increase of rent expense of $242 due to the leaseback of our previously sold corporate headquarters land and building and rent on our new corporate office of $80, and an increase in accounting software costs of $81 associated with service contract fees for our new accounting system.
The increase in other income is primarily related to the gain on the sale of our corporate headquarters located in Tempe, Arizona of $1,459 and decreases in foreign currency loss, offset by a decrease in the 2022 release of a sales tax accrual of $1,435.
The decrease in other income/(expense) is primarily related to the gain on the sale of our corporate office recognized during the year ended December 31, 2023 of $1,459 offset by an increase in interest income of $189 and a decrease in interest expense of $73.
Revenue for professional services and other is recognized when the performance obligation is complete and the customer has accepted the performance obligation. Our Software Solutions revenue increased 19%, or $2,899 to $18,047 for the year ended December 31, 2023 as compared to $15,148 for the year ended December 31, 2022.
Revenue for professional services and other is recognized when the performance obligation is complete and the customer has accepted the performance obligation.
The following table reflects our research and development expense for the year end December 31, 2023, compared to the year ended December 31, 2022: Year Ended December 31, 2023 2022 Dollar Change Percent Change Research and development $ 3,688 $ 2,689 $ 999 37 % 42 Table of Contents The increase in research and development expenses is primarily related to the reclassification of research and development expenses out of cost of service revenue of $452 and out of general and administrative expense of $93, after carefully reviewing expenses that qualify as research and development operating expenses, an increase in salaries, benefits, bonuses, and share-based compensation of $273 related to an increase in headcount, salary increases, and expenses for accrual of annual employee bonuses, an increase in outside consulting services of $132, and an increase in other research and development expenses of $49.
The following table reflects our general and administrative expenses for the year ended December 31, 2024, compared to the year ended December 31, 2023: Year Ended December 31, 2024 2023 Dollar Change Percent Change General and administrative $ 5,273 $ 4,518 $ 755 17 % The increase in general and administrative expenses is primarily related to an increase in salaries, benefits, bonuses, and share-based compensation of $615, an increase in accounting software costs of $81 associated with service contract fees for our new accounting system, an increase in consulting fees of $42, and an increase in other general and administrative expenses of $17.
As of December 31, 2023 and 2022, we had cash and cash equivalents of $10,347 and $5,475, respectively.
We finance our operations primarily through services, software solutions, and product sales to our customers. As of December 31, 2024 and 2023, we had cash and cash equivalents of $18,193 and $10,347, respectively.
The following table reflects our other expense for the year ended December 31, 2023, compared to the year ended December 31, 2022: Year Ended December 31, 2023 2022 Dollar Change Percent Change Other income $ 66 $ 1,288 $ (1,222 ) -95 % The decrease in other income/(expense) is primarily related to the prior year release of a sales tax accrual of $1,435, offset by a decrease in foreign exchange losses of $133, and an increase in other income of $80.
The following table reflects our other income/(expense) for the year ended December 31, 2024, compared to the year ended December 31, 2023: 2024 2023 Dollar Change Percent Change Other income/(expense), net $ (94 ) $ 66 $ (160 ) -242 % The change in other income/(expense) is primarily related to a decrease in other income of $96 and a decrease in foreign exchange gains/(losses) of $64. 43 Table of Contents LIQUIDITY AND CAPITAL RESOURCES Liquidity is a measure of our ability to access sufficient cash flows to meet the short-term and long-term cash requirements of our business operations.
The following table reflects our cost of service revenue for the year ended December 31, 2023, compared to the year ended December 31, 2022: Year Ended December 31, 2023 2022 Dollar Change Percent Change Cost of software solutions revenue $ 5,627 $ 5,336 $ 291 5 % The increase in cost of service revenue is primarily related an increase in software costs of $294, an increase in annual user group meeting expenses of $223, an increase in outside consulting services of $179, an increase in salaries, benefits, bonuses, and share-based compensation of $117, offset by the reclassification of $452 of research and development expenses out of cost of service revenue after carefully reviewing operating expenses, that qualify as research and development operating expenses, and a decrease in other cost of software solutions revenue of $71. 41 Table of Contents Backlog Backlog represents the total contract value of all contracts signed, less revenue recognized from those contracts as of December 31, 2023 and 2022.
The following table reflects our cost of service revenue for the year ended December 31, 2024, compared to the year ended December 31, 2023: Year Ended December 31, 2024 2023 Dollar Change Percent Change Cost of software solutions revenue $ 6,793 $ 5,627 $ 1,166 21 % The increase in cost of software solutions revenue is primarily related to an increase in third-party hosting service costs of $399, an increase in salaries, benefits, bonuses, and share-based compensation of $322, an increase in software costs of $293, an increase in annual user group meeting expenses of $142, and an increase in other cost of software solutions revenue of $10. 42 Table of Contents Selling and Marketing Selling and marketing expenses consist primarily of sales and marketing salaries, benefits, bonuses, commissions, share-based compensation, travel expenses, lead generation services, trade shows, third-party marketing services, the production of marketing materials, annual user group meeting costs, and sales support software.
The increase in revenue is primarily related to organic growth and twelve months of Allegiant Networks revenue compared to two months in the prior year, which contributed $11,017 of the increase in revenue.
The increase in revenue is primarily related to organic growth from new and existing customers.
The net cash used in operations for the year ended December 31, 2022, was primarily driven by our net loss of $35,413, the non-cash release of sales tax accrual of $1,435, an increase in trade receivables receivable of $361, an increase in equipment financing receivables of $616, an increase in contract costs of $788, an increase in other assets of $544, and a decrease in contract liabilities of $360, offset by non-cash expenses for depreciation and amortization of $2,747, share-based compensation $4,374, and goodwill and long-lived asset impairment of $32,678, and an increase in accounts payable and accrued expenses of $246. 43 Table of Contents Investing Activities Cash provided by or used in investing activities is driven by the purchase of property and equipment, business combinations, and asset acquisitions.
The following table reflects our net cash provided by/(used in) operating activities for the year ended December 31, 2024, compared to the year ended December 31, 2023: Year Ended December 31, 2024 2023 Dollar Change Percent Change Net cash provided by/(used in) operating activities $ 6,284 $ 3,499 $ 2,785 80 % The net cash provided by operations for the year ended December 31, 2024 was primarily driven by non-cash expenses for depreciation and amortization of $3,331, share-based compensation of $3,028, our net income of $1,677, an increase in accounts payable and accrued expenses of $1,275, and an increase in contract liabilities of $784, offset by an increase in contract costs of $1,192, an increase in trade receivables of $876, an increase in equipment financing receivables of $822, an increase in prepaid expenses of $368, and an increase in other assets of $346 primarily related to the capitalization of professional service fees for our new accounting system of $234.
Additionally, we had a $242 increase in salaries, benefits, bonuses, and share-based compensation related to increases in headcount to assist with the migration of our customers to our new VIP platform and expenses for the accrual of annual employee bonuses, an increase in third-party telecommunications carrier costs of $158, and an increase in other cost of service revenue of $56. 38 Table of Contents Cost of Product Revenue Cost of product revenue consists of the costs associated with desktop phone devices and third-party equipment.
The following table reflects our cost of service revenue for the year ended December 31, 2024, compared to the year ended December 31, 2023: Year Ended December 31, 2024 2023 Dollar Change Percent Change Cost of service revenue $ 13,087 $ 12,606 $ 481 4 % The increase in cost of service revenue was primarily related to an increase in contract labor costs to assist with the migration of our customers to our new VIP platform of $201, an increase in salaries, benefits, bonuses, and share-based compensation of $94, an increase in third-party telecommunications charges of $71, an increase in credit card processing fees of $68, and an increase in other cost of service revenue of $47.
Removed
Generally, contracts with customers contain multiple performance obligations, consisting of software and services.
Added
Our Software solutions revenue increased 30%, or $5,327 to $23,374 for the year ended December 31, 2024, compared to $18,047 for the year ended December 31, 2023. 30 Table of Contents Results of Consolidated Operations The following discussion of financial condition and results of operations should be read in conjunction with the Consolidated Financial Statements and Notes thereto and other financial information included herein this Annual Report.
Removed
Our November 1, 2022 acquisition of Allegiant Networks contributed $8,886 of the increase in service revenue and $2,131 of the increase in product revenue compared to 2022.
Added
The increase in operating expenses is primarily related to an increase in commission expense of $1,621, an increase in contract labor and outsourced engineering services of $549, an increase in hosting service fees of $399, an increase in marketing costs of $307, and an increase in salaries, benefits, bonuses and share-based compensation of $220.
Removed
The decrease in operating expenses is primarily related to a $32,678 decrease in goodwill and long-lived asset impairment, offset by twelve months of Allegiant Networks operating expenses compared to two months in the prior year, which contributed $11,006, increases in salaries, benefits, and commission expense of $1,539, and other operating expenses of $75.
Added
These extended warranties are sold separately and provide services in addition to assurance that the product will function as expected, including updates and patches.
Removed
The current income tax provision is calculated as the estimated taxes payable or refundable on tax returns for the current year.
Added
These estimates can change significantly from period to period and are reviewed each reporting period to establish the fair value of the contingent liability. Contingent liabilities for annual employee bonuses requires management to make estimates of future payouts and accrue liabilities when the future payout is probable and reasonably estimatable.
Removed
Allowance for Credit Losses We record an allowance for credit losses in accordance with the Current Expected Credit Loss (“CECL”) model. We utilize the forward looking “expected loss” model to establish an allowance for credit losses for our trade receivables, contract asset, and equipment financing receivables.

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