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What changed in Crexendo, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Crexendo, Inc.'s 2022 and 2023 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 2023 report.

+264 added−214 removedSource: 10-K (2024-03-05) vs 10-K (2023-03-14)

Top changes in Crexendo, Inc.'s 2023 10-K

264 paragraphs added · 214 removed · 181 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeIt also provided users instant access to visual voicemail and call logs. · End User Portal and Unified Messaging with Voicemail, Call Recording and eFax inbox. · Collaboration products like group chat, SMS/MMS, document sharing, video and web conferencing. 6 Table of Contents Our Software Solutions technology includes a full suite of Voice over Internet Protocol (VoIP)/UC features with one low cost universal license, built out either in a client's own data centers, or on our Managed Infrastructure as a Service.
Biggest changeOur Software Solutions technology includes a full suite of Voice over Internet Protocol (VoIP)/UC features with one low cost universal license, built out either in a client's own data centers, or on our Managed Infrastructure as a Service.
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.
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.
Many of these features included in the service offering are: · Business Productivity Features such as dial-by extension and name, transfer, conference, call recording, Unlimited calling to anywhere in the US and Canada, International calling, Toll free (Inbound and Outbound) · Individual Productivity Features such as Caller ID, Call Waiting, Last Call Return, Call Recording, Music/Message-On-Hold, Voicemail, Unified Messaging, Hot-Desking · Group Productivity Features such as Call Park, Call Pickup, Interactive Voice Response (IVR), Individual and Universal Paging, Corporate Directory, Multi-Party Conferencing, Group Mailboxes, Web and mobile devices based collaboration applications · Call Center Features such as Automated Call Distribution (ACD), Call Monitor, Whisper and Barge, Automatic Call Recording, One way call recording, Analytics · Advanced Unified Communication Features such as Find-Me-Follow-Me, Sequential Ring and Simultaneous Ring, Voicemail transcription · Mobile Features such as extension dialing, transfer and conference and seamless hand-off from WiFi to/from 3G and 4G, LTE, as well as other data services.
Many of these features included in the service offering are: · Business Productivity Features such as dial-by extension and name, transfer, conference, call recording, Unlimited calling to anywhere in the US and Canada, International calling, Toll free (Inbound and Outbound) · Individual Productivity Features such as Caller ID, Call Waiting, Last Call Return, Call Recording, Music/Message-On-Hold, Voicemail, Unified Messaging, Hot-Desking · Group Productivity Features such as Call Park, Call Pickup, Interactive Voice Response (IVR), Individual and Universal Paging, Corporate Directory, Multi-Party Conferencing, Group Mailboxes, Web and mobile devices based collaboration applications · Call Center Features such as Automated Call Distribution (ACD), Call Monitor, Whisper and Barge, Automatic Call Recording, One way call recording, Analytics · Advanced Unified Communication Features such as Find-Me-Follow-Me, Sequential Ring and Simultaneous Ring, Voicemail transcription · Mobile Features such as extension dialing, transfer and conference and seamless hand-off from WiFi to/from 3G, 4G, 5G, and LTE, as well as other data services.
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). · Crexendo Mobile Application (CrexMo), which allows users to place and receive extension calls using Crexendo’s network, transfer and conference other users right from their mobile deviceas if they were in the office.
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 products and services can be categorized in the following offerings: Cloud Telecommunications Services – Our cloud telecommunications service offering includes hardware, software, and unified ng IP or cloud technology over any high-speed Internet connection.
Our products and services can be categorized in the following offerings: Cloud Telecommunications Services – Our cloud telecommunications service offering includes hardware, software, and unified IP or cloud technology over any high-speed Internet connection.
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. 3 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 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.
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 7 Table of Contents ○ HD Audio ○ Call Transcription ○ Sentiment Analysis ○ Customizable Emergency Notifications ○ E911 Dynamic Routing ○ Cradle to Grave Reporting ● 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 $3,955,000 and $1,396,000 for the years ended December 31, 2022 and 2021, 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 ○ 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.
We believe we can continue the operation of our business by periodic review and revision to our product offerings and marketing approach. 9 Table of Contents INTELLECTUAL PROPERTY Our success depends in part on using and protecting our proprietary technology and other intellectual property. Furthermore, we must conduct our operations without infringing on the proprietary rights of third parties.
We believe we can continue the operation of our business by periodic review and revision to our product offerings and marketing approach. 5 Table of Contents INTELLECTUAL PROPERTY Our success depends in part on using and protecting our proprietary technology and other intellectual property. Furthermore, we must conduct our operations without infringing on the proprietary rights of third parties.
These features are also available on CrexMo, an 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 Devices · 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. 4 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. 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.
The majority of these expenditures were for enhancements to our cloud telecommunications products and services and continued development of our software solutions products. 8 Table of Contents COMPETITION The market for cloud business communications services is large and increasingly competitive. We expect competition to continue to increase in the future.
The majority of these expenditures were for enhancements to our cloud telecommunications products and services and continued development of our software solutions products. COMPETITION The market for cloud business communications services is large and increasingly competitive. We expect competition to continue to increase in the future.
(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., 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 (formerly Thinking Phone Networks), StarBlue (merger of Star2Star and BlueFace), Intermedia.net, Inc., J2 Global, Inc., 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.net, Inc., OOMA, Jive Communications, Inc.
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. Our solutions currently support over three million end users globally.
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.
EMPLOYEES As of December 31, 2022, we had 181 employees; 176 full-time and 5 part-time, including 10 executives, 45 sales representatives and sales management, 8 in marketing, 29 engineers and IT support, 73 in operations and customer support, 16 in accounting, finance, and legal.
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.
Segment revenue and income/(loss) before income tax benefit/(provision) was as follows (in thousands): Year Ended December 31, 2022 2021 Revenue: Cloud telecommunications services $ 22,406 $ 19,426 Software solutions 15,148 8,666 Consolidated revenue $ 37,554 $ 28,092 Year Ended December 31, 2022 2021 Loss before income tax benefit: Cloud telecommunications services $ (3,948 ) $ (2,713 ) Software solutions (32,227 ) (197 ) Loss before income tax $ (36,175 ) $ (2,910 ) 5 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, 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.
In addition, the SEC maintains an internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at www.sec.gov. 10 Table of Contents The Company announces material information to the public about the Company, its products and services and other matters through a variety of means, including the Company’s website (www.crexendo.com), the investor relations section of its website (www.crexendo.com/company/investors), press releases, filings with the SEC, and public conference calls, in order to achieve broad, non-exclusionary distribution of information to the public.
The Company announces material information to the public about the Company, its products and services and other matters through a variety of means, including the Company’s website (www.crexendo.com), the investor relations section of its website (www.crexendo.com/company/investors), press releases, filings with the SEC, and public conference calls, in order to achieve broad, non-exclusionary distribution of information to the public.
We generate professional services and other revenue from consulting, technical support, resident engineer services, design services and installation services. Revenue for professional services and other is recognized when the performance obligation is complete and the customer has accepted the performance obligation.
We generate professional services and other revenue from consulting, technical support, resident engineer services, design services and installation services. Revenue for professional services and other is recognized when the performance obligation is complete and the customer has accepted the performance obligation. OUR SERVICES AND PRODUCTS Our solution was recently recognized as the fastest growing UCaaS platform in the United States.
Some of the advanced features such as Automatic Call Recording and Call Center Features require additional monthly fees. Crexendo continues to invest and develop its technology and CPaaS offerings to make them more competitive and profitable.
Some of the advanced features such as Automatic Call Recording and Call Center Features require additional monthly fees. Crexendo continues to invest and develop its technology and CPaaS offerings to make them more competitive and profitable. Software Solutions – Our software solutions offering provides a comprehensive suite of unified communications (UC), video conferencing, collaboration & contact center solutions.
Our software solutions offering are as follows: · SNAPsolution® - a comprehensive, IP-based platform that provides a broad suite of UC services including hosted Private Branch Exchange (PBX), auto-attendant, call center, conferencing, and mobility. The platform includes a broad range of feature-sets, custom-built to provide unprecedented levels of flexibility, making the solution competitive with the market’s leading players.
Our platform enables service providers to customize packages with unprecedented levels of flexibility, profitability, and ease of use. Our software solutions offering are as follows: · SNAPsolution® - a comprehensive, IP-based platform that provides a broad suite of UC services including hosted Private Branch Exchange (PBX), auto-attendant, call center, conferencing, and mobility.
The Company encourages investors and others to review the information it makes public in these locations, as such information could be deemed to be material information. Please note that this list may be updated from time to time. GOVERNMENTAL REGULATION As a provider of Internet communications services, we are subject to regulation in the U.S. by the FCC.
Please note that this list may be updated from time to time. 6 Table of Contents GOVERNMENTAL REGULATION As a provider of Internet communications services, we are subject to regulation in the U.S. by the FCC.
SNAPsolution includes a full suite of Voice over Internet Protocol (VoIP)/UC features with one low cost universal license, as opposed to pricing each feature individually. The Company licenses its platform based on concurrent sessions, not per seat/per feature. This allows service providers to oversubscribe their networks, driving down the cost per seat as volume increases.
The Company licenses its platform based on concurrent sessions, not per seat/per feature. This allows service providers to oversubscribe their networks, driving down the cost per seat as volume increases.
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OUR SERVICES AND PRODUCTS Our solutions currently support over three million end users globally and was recently recognized as the fastest growing UCaaS platform in the United States.
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The platform includes a broad range of feature-sets, custom-built to provide unprecedented levels of flexibility, making the solution competitive with the market’s leading players. SNAPsolution includes a full suite of Voice over Internet Protocol (VoIP)/UC features with one low cost universal license, as opposed to pricing each feature individually.
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Software Solutions – Our software solutions offering provides a comprehensive suite of unified communications (UC), video conferencing, collaboration & contact center solutions to over 215 service providers, servicing over three million users around the globe. Our platform enables service providers to customize packages with unprecedented levels of flexibility, profitability, and ease of use.
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It also provides users instant access to visual voicemail and call logs. · End User Portal and Unified Messaging with Voicemail, Call Recording and eFax inbox. · Collaboration products like group chat, SMS/MMS, document sharing, video and web conferencing.
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In addition, the SEC maintains an internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at www.sec.gov.
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The Company encourages investors and others to review the information it makes public in these locations, as such information could be deemed to be material information.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeWe have no control on the outsourced services and a catastrophic failure on the part of one of the outsourced services could cause a loss of customers, loss of revenue, potential liability and a decline in our stock price. 16 Table of Contents As a small regional provider, many of Allegiant’s current and potential MSP competitors have longer operating histories providing managed services, significantly greater resources and brand awareness, and a larger base of customers than we have.
Biggest changeAs a small regional provider, many of Allegiant’s current and potential MSP competitors have longer operating histories providing managed services, 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.
We depend on these companies to provide service telecom services, sourcing of Direct Inward Dialing (DID), porting of numbers and delivering telephone calls from and to endpoints and devices on our network.
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.
If we fail to maintain compliance, we could be unable to report our financial results timely and accurately or prevent fraud. We may to 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 expense and devote substantial management effort toward strengthening our systems.
We are planning to migrate most of Crexendo’s customers to the Crexendo Software Solutions Communication Platform, the failure to do that efficiently and properly may impact our business revenue and stock price. We are continuing 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. 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.
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. o 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. · 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.
President Biden and numerous Senators have criticized the current status of net neutrality, at this time we are not aware if there will be legislation that might reimpose the prior regulations. States are adding regulation for VoIP providers which could increase our costs and change certain aspects of our service.
President Biden and numerous Senators have criticized the current status of net neutrality, at this time we are not aware if there will be legislation that might reimpose the prior regulations. States are adding regulations for VoIP providers which could increase our costs and change certain aspects of our service.
Our Software Solutions Division relies on outside contractors and service providers, the failure of which could impact servie and profitability. We depend on several third-party providers to provide uninterrupted and error-free service to maintain our operations and to provide managed services. We do not have control over these providers, and some of these providers may be our competitors.
Our Software Solutions Division relies on outside contractors and service providers, the failure of which could impact service and profitability. We depend on several third-party providers to provide uninterrupted and error-free service to maintain our operations and to provide managed services. We do not have control over these providers, and some of these providers may be our competitors.
Their systems also may be subject to break-ins, sabotage and intentional acts of vandalism. Some of our provider systems may not be fully redundant, and their disaster recovery planning may not be sufficient for all eventualities. o Outside contractors and third-party agents for fulfillment of certain items and critical manufacturing services.
Their systems also may be subject to break-ins, sabotage and intentional acts of vandalism. Some of our provider systems may not be fully redundant, and their disaster recovery planning may not be sufficient for all eventualities. · Outside contractors and third-party agents for fulfillment of certain items and critical manufacturing services.
If we do not successfully maintain our physical infrastructure and maintain sufficient diverse geo redundant locations, which require large investments, we may be unable to substantially increase our sales and retain customers. Our ability to provide cloud telecommunications services is dependent upon on our physical and cloud-based infrastructure.
If we do not successfully maintain our physical infrastructure and maintain sufficient diverse geo redundant locations, which require large investments, we may be unable to substantially increase our sales and retain customers. Our ability to provide cloud telecommunications services is dependent upon our physical and cloud-based infrastructure.
These third-party providers include: o Internet Bandwidth Providers. We may be subject to interruptions or delays in network service. If we fail to maintain reliable bandwidth or performance that could significantly reduce customer demand for our services and damage our business.
These third-party providers include: · Internet Bandwidth Providers. We may be subject to interruptions or delays in network service. If we fail to maintain reliable bandwidth or performance that could significantly reduce customer demand for our services and damage our business.
Mihaylo has the ability to determine the outcome of matters submitted to our stockholders for approval, including the election of directors and any merger, amalgamation, consolidation or sale of all or substantially all of our assets. Mr. Mihaylo may have the ability to control the management and affairs of our Company.
Mihaylo may have the ability to determine the outcome of matters submitted to our stockholders for approval, including the election of directors and any merger, amalgamation, consolidation or sale of all or substantially all of our assets. Mr. Mihaylo may have the ability to control the management and affairs of our Company.
Our quarterly and annual results of operations have varied historically from period to period, and we expect that they will continue to fluctuate due to a variety of factors (including but not limited to inflation, economic uncertainty, potential recession and COVID-19), some of which are outside of our control, including: ● our ability to retain existing customers and resellers, expand our existing customers’ user base, and attract new customers; ● our ability to introduce new solutions; 12 Table of Contents ● the actions of our competitors, including pricing changes or the introduction of new solutions; ● our ability to effectively manage our growth; ● our ability to successfully penetrate the market for larger businesses; ● the mix of annual and multi-year subscriptions at any given time; ● the timing, cost, and effectiveness of our advertising and marketing efforts; ● the timing, operating cost, and capital expenditures related to the operation, maintenance and expansion of our business; ● service outages or information security breaches and any related impact on our reputation; ● our ability to accurately forecast revenues and appropriately plan our expenses; ● our ability to realize our deferred tax assets; ● costs associated with defending and resolving intellectual property infringement and other claims; ● changes in tax laws, regulations, or accounting rules; ● the timing and cost of developing or acquiring technologies, services or businesses, and our ability to successfully manage any such acquisitions; ● adverse weather conditions; ● the impact of worldwide economic, political, industry, and market conditions; and, ● our ability to maintain compliance with all regulatory requirements.
Our quarterly and annual results of operations have varied historically from period to period, and we expect that they will continue to fluctuate due to a variety of factors (including but not limited to inflation, economic uncertainty and potential recession), some of which are outside of our control, including: ● our ability to retain existing customers and resellers, expand our existing customers’ user base, and attract new customers; ● our ability to introduce new solutions; ● the actions of our competitors, including pricing changes or the introduction of new solutions; ● our ability to effectively manage our growth; ● our ability to successfully penetrate the market for larger businesses; ● the mix of annual and multi-year subscriptions at any given time; ● the timing, cost, and effectiveness of our advertising and marketing efforts; ● the timing, operating cost, and capital expenditures related to the operation, maintenance and expansion of our business; ● service outages or information security breaches and any related impact on our reputation; ● our ability to accurately forecast revenues and appropriately plan our expenses; ● our ability to realize our deferred tax assets; ● costs associated with defending and resolving intellectual property infringement and other claims; ● changes in tax laws, regulations, or accounting rules; ● the timing and cost of developing or acquiring technologies, services or businesses, and our ability to successfully manage any such acquisitions; ● adverse weather conditions; ● the impact of worldwide economic, political, industry, and market conditions; and, ● our ability to maintain compliance with all regulatory requirements.
If 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 VoIP 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.
If 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.
Our business may suffer if the market develops in an unexpected manner, develops more slowly than in the past or becomes saturated with competitors, if any new products and services do not sustain market acceptance. A number of very large, well-capitalized, high-profile companies serve the e-commerce, VoIP and Cloud technology markets.
Our business may suffer if the market develops in an unexpected manner, develops more slowly than in the past or becomes saturated with competitors, if any new products and services do not sustain market acceptance. A number of very large, well-capitalized, high-profile companies serve the e-commerce, UCaaS and Cloud technology markets.
The total destruction or severe impairment of our data center facilities could result in significant downtime of our services and the loss of customer data. 17 Table of Contents We depend on our senior management and other key personnel, and a loss of these individuals could adversely impact our ability to execute our business plan and grow our business.
The total destruction or severe impairment of our data center facilities could result in significant downtime of our services and the loss of customer data. 13 Table of Contents We depend on our senior management and other key personnel, and a loss of these individuals could adversely impact our ability to execute our business plan and grow our business.
Enterprise customers may demand more features, integration services and customization which require additional engineering and operational time which could impact margins on an enterprise sale. Multi-location enterprise customer sales may have different requirement in different locations which may be difficult to fulfill or satisfy various interests which could result in cancellations.
Enterprise customers may demand more features, integration services and customization which require additional engineering and operational time which could impact margins on an enterprise sale. Multi-location enterprise customer sales may have different requirements in different locations which may be difficult to fulfill or satisfy various interests which could result in cancellations.
From time to time, we received inquiries from federal, national, state, city and local government officials in the various jurisdictions in which we operated. These inquiries had historically been related to our discontinued seminar sales practices. There is still the potential of review of past sales and sales of our current web and telecom services.
From time to time, we received inquiries from federal, national, state, city and local government officials in the various jurisdictions in which we operated. These inquiries have historically been related to our discontinued seminar sales practices. There is still the potential of review of past sales and sales of our current web and telecom services.
Our VoIP offering is not fully compatible with such customers. Some of these traditional providers have also added VoIP services. There is also competition from cable providers, which have added VoIP service offerings in bundled packages to their existing cable customers. The telecommunications industry is highly competitive.
Our UCaaS offering is not fully compatible with such customers. Some of these traditional providers have also added UCaaS services. There is also competition from cable providers, which have added UCaaS service offerings in bundled packages to their existing cable customers. The telecommunications industry is highly competitive.
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 2022 and 2021 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 2022 and may experience losses in the future.
We have incurred significant costs in connection with the recent acquisitions including legal, accounting, financial consulting, and related fees. There will be costs associated with combining accounting systems with the Allegiant system. We may also incur fees and costs related to these integration plans.
We have incurred significant costs in connection with the recent acquisitions including legal, accounting, financial consulting, and related fees. There will be costs associated with combining accounting systems. We may also incur fees and costs related to these integration plans.
There may be expenses and other difficulties involved in migrating customers, which may cause substantial short-term expenses prior to realizing the anticipated cost savings from primarily operating one system. We may be unable to realize efficiencies of primarily maintaining one communication platform. 29 Table of Contents We have incurred and still have some continuing transaction costs in connection with Acquisitions.
There may be expenses and other difficulties involved in migrating customers, which may cause substantial short-term expenses prior to realizing the anticipated cost savings from primarily operating one system. We may be unable to realize efficiencies of primarily maintaining one communication platform. We have incurred and still have some continuing transaction costs in connection with Acquisitions.
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.
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).
In addition, the outcome of examinations may impact the valuation of certain deferred income tax assets (such as NOL carry-forwards) in future periods. It is not possible to estimate the impact of the amount of such changes, if any, to previously recorded uncertain tax positions. 24 Table of Contents The FCC net neutrality rules have changed.
In addition, the outcome of examinations may impact the valuation of certain deferred income tax assets (such as NOL carry-forwards) in future periods. It is not possible to estimate the impact of the amount of such changes, if any, to previously recorded uncertain tax positions. The FCC net neutrality rules have changed.
Interruptions in service from these vendors could also cause failures in our customers’ access to E-911 services and expose us to liability. o 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. 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.
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. 27 Table of Contents 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. Our actual operating results may not meet expectations, which could likely cause our stock price to decline.
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. 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. 24 Table of Contents Crexendo’s business relationships, including customer relationships, may be subject to disruption due to Acquisitions.
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.
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.
Changes in our underlying costs of sales may increase rates we charge our customers which could make us less competitive and impact our sales and retention of existing customers. 21 Table of Contents Changes in laws and regulations and the interpretation and enforcement of such laws and regulations could adversely impact our financial results or ability to conduct business.
Changes in our underlying costs of sales may increase rates we charge our customers which could make us less competitive and impact our sales and retention of existing customers. Changes in laws and regulations and the interpretation and enforcement of such laws and regulations could adversely impact our financial results or ability to conduct business.
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. 30 Table of Contents
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.
The ability to make scheduled payments of principal or to pay interest on debt will depend on our future performance, which is subject to economic, financial, competitive, and other factors beyond our control. Our business may not generate cash flow from operations to service any acquired debt, including paying off the principal when due, and make necessary capital expenditures.
The ability to make scheduled payments of principal or to pay interest on debt will depend on our future performance, which is subject to economic, financial, competitive, and other factors beyond our control. Our business may not generate cash flows from operations to service any incurred debt, including paying off the principal when due, and make necessary capital expenditures.
This access is provided by companies that have significant and increasing market power in the broadband and Internet access marketplace some of these providers offer products and services that directly compete with our own offerings, which give them a significant competitive advantage. 20 Table of Contents o Tier 1 and non-Tier 1 Telecom suppliers for Telecom Origination and Termination Services.
This access is provided by companies that have significant and increasing market power in the broadband and Internet access marketplace some of these providers offer products and services that directly compete with our own offerings, which give them a significant competitive advantage. · Tier 1 and non-Tier 1 Telecom suppliers for Telecom Origination and Termination Services.
Risks Related to Our Common Stock Our stock price may be volatile and may decline, 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; 26 Table of Contents ● 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.
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.
Our website hosting revenue represents less than 1% of our total revenue for the year ended December 31, 2022 and will continue to decline. In addition, the Company may determine that it will discontinue its web hosting functions as the cost to provide services may exceed any revenue received from those services.
Our website hosting revenue represents less than 1% of our total revenue for the year ended December 31, 2023 and will continue to decline. In addition, the Company may determine that it will discontinue or transfer its web hosting functions as the cost to provide services may exceed any revenue received from those services.
We face intense competition from traditional telephone companies, wireless companies, cable companies, and alternative voice communication providers. 15 Table of Contents Most traditional wire line and wireless telephone service providers, cable companies, and some VoIP 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. 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.
If our assumptions regarding these uncertainties are incorrect or change in reaction to changes in our markets, or if we do not manage or address these risks successfully, our results of operations could differ materially from our expectations, and our business could suffer. We may not remain profitable, and results may fluctuate.
If our assumptions regarding these uncertainties are incorrect or change in reaction to changes in our markets, or if we do not manage or address these risks successfully, our results of operations could differ materially from our expectations, and our business could suffer.
Marketing expenditures are an ongoing requirement and will become a larger ongoing requirement of our business as we strive for acquiring 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.
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.
In order to continue and maintain profitability, we will need to manage our cost structure more efficiently, not incur significant liabilities, while continuing to grow our revenues.
In order to achieve or maintain profitability, we will need to manage our cost structure more efficiently, not incur significant liabilities, while continuing to grow our revenues.
Our customers and potential customers subscribing to our services have experienced such interruptions in the past and may experience such interruptions in the future as a result of these types of problems or others which may or may not be in our control.
In addition, there may be service interruptions for reasons outside our control. Our customers and potential customers subscribing to our services have experienced such interruptions in the past and may experience such interruptions in the future as a result of these types of problems or others which may or may not be in our control.
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, 2022, we had net operating loss (“NOL”) carry-forwards of approximately $26,892,000.
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.
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 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.
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.
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.
We face intense competition from traditional telephone companies, wireless companies, cable companies and alternative voice communication providers and other VoIP companies. Our Cloud telecommunications services compete with other voice over internet protocol (“VoIP”) providers. In addition, we also compete with traditional telephone service providers which provide telephone service based on the public switched telephone network (“PSTN”).
We face intense competition from traditional telephone companies, wireless companies, cable companies and alternative voice communication providers and other UCaaS companies. Our Cloud telecommunications services compete with other unified communication as a service (“UCaaS”) providers. In addition, we also compete with traditional telephone service providers which provide telephone service based on the public switched telephone network (“PSTN”).
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.
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.
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.
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.
We have been paying a quarterly dividend. Any determination to pay dividends to the Company’s stockholders in the future will be at the discretion of the board of directors and will depend on the Company's results of operations, financial condition and other factors deemed relevant by the board of directors.
It is unlikely that we will start paying a dividend again in the near term. Any determination to pay dividends to the Company’s stockholders in the future will be at the discretion of the board of directors and will depend on the Company's results of operations, financial condition and other factors deemed relevant by the board of directors.
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 acquire debt to fund acquisitions or mergers.
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.
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.
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.
If we fail to meet or exceed the expectations of research analysts or investors, the market price of our shares could fall substantially, and we could face costly lawsuits, including securities class-action suits.
If we fail to meet or exceed the expectations of research analysts or investors, the market price of our shares could fall substantially, and we could face costly lawsuits, including securities class-action suits. This may also impair our ability to raise capital, should we seek to do so.
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.
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.
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.
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.
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 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.
As part of our recent acquisitions there are certain employees who own substantial amounts of our common stock which is subject to sale on the open market. The substantial purchase price of our acquisition of both NetSapiens and Allegiant involved the issuing of our common stock.
As part of our recent acquisitions there are certain employees who own substantial amounts of our common stock which is subject to sale on the open market. The NetSapiens acquisition allowed employees to convert their options to options to purchase common stock of Crexendo.
As part of a potential growth strategy, we expect to attempt to acquire or merge with certain businesses. Whether we realize benefits from any such transactions will depend in part upon the integration of the acquired businesses, the performance of the acquired products, services and capacities of the technologies acquired, as well as the personnel hired in connection therewith.
Whether we realize benefits from any such transactions will depend in part upon the integration of the acquired businesses, the performance of the acquired products, services and capacities of the technologies acquired, as well as the personnel hired in connection therewith.
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 been paying a quarterly dividend and there is no guarantee that dividends will continue to be paid We may not be able to maintain paying dividends at current rates or at all.
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.
If the Company undertakes future offerings, or the Company issues stock compensation in an acquisition or merger stockholders will have a dilution in their ownership percentage of stock which may be substantial depending upon the amount of shares which may be required. 28 Table of Contents Our Chairman of the Board owns a significant amount of our common stock and could exercise substantial corporate control.
If the Company undertakes future offerings, or the Company issues stock compensation in an acquisition or merger stockholders will have a dilution in their ownership percentage of stock which may be substantial depending upon the amount of shares which may be required.
If our customers do not renew their subscriptions for our service or decrease the amount they spend with us, our revenue will decline, and our business will suffer. 19 Table of Contents Our rate of customer cancellations we believe has increased and may increase in future periods due to many factors, some of which are beyond our control, such as the financial condition of our customers or the state of credit markets, especially given the current economic uncertainty, inflation and supply issue and their impact on the economy.
Our rate of customer cancellations we believe has increased and may increase in future periods due to many factors, some of which are beyond our control, such as the financial condition of our customers or the state of credit markets, especially given the current economic uncertainty, inflation and supply issue and their impact on the economy.
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.
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.
Our services (including cloud telecommunications, software solutions, managed services and e-commerce) can be disrupted by problems with our technology and systems such as malfunctions in our servers, processes, software or facilities. In addition, there may be service interruptions for reasons outside our control.
Errors in our technology or technological issues outside our control could cause delays or interruptions to our customers. Our services (including cloud telecommunications, software solutions, managed services and e-commerce) can be disrupted by problems with our technology and systems such as malfunctions in our servers, processes, software or facilities.
Some of the provisions of our articles of incorporation and bylaws 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.
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.
As a “control company” it may not be required that the Company maintains a board comprising a majority of independent directors. As a director, Mr. Mihaylo owes a fiduciary duty to our stockholders. As a stockholder, Mr. Mihaylo is entitled to vote his shares, in his own interests, which may not always be in the interests of our stockholders generally.
As a “control company” it may not be required that the Company maintains a board comprising a majority of independent directors. Mr. Mihaylo remains a director and as such, Mr. Mihaylo owes a fiduciary duty to our stockholders. As a stockholder, Mr.
Our phones may be moved to locations which could potentially subject us to jurisdiction. Also, websites we host may be available in these locations.
Our phones may be moved to locations which could potentially subject us to jurisdiction. Also, websites we host may be available in these locations. As we conduct business or become deemed to conduct business in those foreign jurisdictions, we may become subject to those laws.
In addition, customers may use our services to store protected health information, or PHI, that is protected under the Health Insurance Portability and Accountability Act, or HIPAA.
In addition, customers may use our services to store protected health information, or PHI, that is protected under the Health Insurance Portability and Accountability Act, or HIPAA. Noncompliance with laws and regulations relating to privacy and HIPAA may lead to significant fines, penalties or civil liability.
Our management team and other personnel devote a substantial amount of time complying with SEC, Nasdaq and other public company requirements. 25 Table of Contents 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 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.
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.
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.
However, there is no guarantee that such systems and processes will not experience a failure. Our failure to protect against fraud or breaches may subject us to costly breach notification and other mitigation obligations, class action lawsuits, investigations, fines, forfeitures, or penalties from governmental agencies that could adversely affect our operating results.
Our failure to protect against fraud or breaches may subject us to costly breach notification and other mitigation obligations, class action lawsuits, investigations, fines, forfeitures, or penalties from governmental agencies that could adversely affect our operating results. We may be unable to prevent our customers from fraudulently receiving goods and services.
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.
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.
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. 14 Table of Contents Acquiring debt to finance acquisitions would require paying down of principal and payment of interest, which requires the use of cash, and we may not have sufficient cash flow from our business to pay down substantial debt.
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.
Customers have, in the past, obtained access to our service without paying for monthly service and international toll calls by unlawfully using fraudulently obtained codes. If our existing anti-fraud procedures are not adequate or effective, consumer fraud and theft of service could have a material adverse effect on our business, financial condition, and operating results.
If our existing anti-fraud procedures are not adequate or effective, consumer fraud and theft of service could have a material adverse effect on our business, financial condition, and operating results.
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. 18 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.
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.
We may be unable to prevent our customers from fraudulently receiving goods and services. Our liability could also increase if a large fraction of transactions using our services involve fraudulent or disputed credit card transactions. We may also experience losses due to customer fraud and theft of service.
Our liability could also increase if a large fraction of transactions using our services involve fraudulent or disputed credit card transactions. We may also experience losses due to customer fraud and theft of service. Customers have, in the past, obtained access to our service without paying for monthly service and international toll calls by unlawfully using fraudulently obtained codes.
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.
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.
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.
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.
As we conduct business or become deemed to conduct business in those foreign jurisdictions, we may become subject to those laws. 22 Table of Contents We are also subject to the privacy and data protection-related obligations in our contracts with our customers and other third parties.
We are also subject to the privacy and data protection-related obligations in our contracts with our customers and other third parties.
Sales of a significant number of shares of our common stock in the public market could harm the market price of our common stock. 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 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.
The lock up period for the purchase of NetSapiens has ended, and there is a rolling two year lock up of the stock that was part of the consideration for the purchase of Allegiant. These employees who acquired the stock may sell their shares on the open market which may depress our stock price.
The substantial purchase price of our acquisition of both NetSapiens and Allegiant involved the issuing of our common stock. The lock up period for the purchase of NetSapiens has ended, and there is a rolling two year lock up of the stock that was part of the consideration for the purchase of Allegiant.
The COVID-19 pandemic has also caused significant uncertainty and volatility in global and domestic financial markets and the trading prices for the common stock of technology companies, including us. In the past, stockholders have instituted securities class action litigation following periods of market volatility.
Stock prices of many technology companies have fluctuated in a manner unrelated or disproportionate to the operating performance of those companies. The COVID-19 pandemic has also caused significant uncertainty and volatility in global and domestic financial markets and the trading prices for the common stock of technology companies, including us.
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.
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.
We are licensed as a VoIP seller in Canada and are considering expanding to other countries. We also cannot control if our customers take their devices out of the United States and use them abroad. Our resellers may sell to customers who maintain facilities outside the United States.
We also cannot control if our customers take their devices out of the United States and use them abroad. Our resellers may sell to customers who maintain facilities outside the United States. The failure by us or our customers and resellers to comply with laws and regulations could reduce our revenue and profitability.
We have encountered and expect to continue to encounter risks and uncertainties as a growing company, the market for our products changes frequently.
Our growth and the evolving markets in which we operate make it difficult to evaluate our current business and future prospects, which may increase the risk of investing in our stock. We have encountered and expect to continue to encounter risks and uncertainties as a growing company, the market for our products changes frequently.
Accordingly, our results of operations could be adversely affected from transaction-related charges, amortization of intangible assets, and charges for impairment of long-term assets including goodwill and intangible assets. While we believe that we have established appropriate and adequate procedures and processes to mitigate these risks, there can be no assurance that any potential transaction will be successful.
Accordingly, our results of operations could be adversely affected from transaction-related charges, amortization of intangible assets, and charges for impairment of long-term assets including goodwill and intangible assets.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeWe maintain property insurance on the corporate office building and tenant fire and casualty insurance on our assets located in the building in an amount that we deem adequate.
Biggest changeWe maintain tenant fire and casualty insurance on our assets located in these buildings in an amount that we deem adequate.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeHigh Low 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 Year Ended December 31, 2021 October to December 2021 $ 6.20 $ 4.39 July to September 2021 7.20 5.35 April to June 2021 6.93 4.90 January to March 2021 8.38 5.51 Security Holders As of December 31, 2022, there were 177 shareholders of record of our common stock.
Biggest changeHigh 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.
Dividends Our Board of Directors declared the following dividends payable in 2022 and 2021 (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 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.
DIVIDENDS 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.
The following table sets forth the range of high and low sales prices as reported on the OTCQX Marketplace or The Nasdaq Stock Market for the periods indicated.
The following table sets forth the range of high and low sales prices as reported on the Nasdaq Stock Market for the periods indicated.
On March 14, 2023, our Board of Directors declared a quarterly cash dividend of $0.005 per share. 32 Table of Contents ISSUER PURCHASES OF EQUITY SEQURITIES None RECENT SALES OF UNREGISTERED SECURITIES None
On March 14, 2023, our Board of Directors cancelled the quarterly dividend. ISSUER PURCHASES OF EQUITY SEQURITIES None RECENT SALES OF UNREGISTERED SECURITIES None

Item 7. Management's Discussion & Analysis

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

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Biggest changeSegment operating income is equal to segment net revenue less segment cost of service revenue, cost of software solution revenue, cost of product revenue, sales and marketing, research and development, and general and administrative expenses. 41 Table of Contents Operating Results of our Cloud Telecommunications Services Segment (in thousands): Year Ended December 31, Cloud Telecommunications Services 2022 2021 Service revenue $ 19,515 $ 17,102 Product revenue 2,891 2,324 Total revenue 22,406 19,426 Operating expenses: Cost of service revenue 6,711 5,104 Cost of product revenue 1,637 1,525 Selling and marketing 7,234 5,915 General and administrative 9,366 8,129 Research and development 1,266 1,396 Long-lived asset impairment 69 - Total operating expenses 26,283 22,069 Operating loss (3,877 ) (2,643 ) Other expense (71 ) (70 ) Loss before tax benefit $ (3,948 ) $ (2,713 ) Quarterly Financial Information 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 ) 42 Table of Contents For the three months ended March 31, June 30, September 30, December 31, Cloud Telecommunications Services 2021 2021 2021 2021 Service revenue $ 4,139 $ 4,327 $ 4,325 $ 4,311 Product revenue 368 440 701 815 Total revenue 4,507 4,767 5,026 5,126 Operating expenses: Cost of service revenue 1,259 1,347 1,210 1,288 Cost of product revenue 225 286 461 553 Selling and marketing 1,279 1,508 1,487 1,641 General and administrative 2,216 2,167 1,763 1,983 Research and development 350 388 358 300 Total operating expenses 5,329 5,696 5,279 5,765 Operating loss (822 ) (929 ) (253 ) (639 ) Other expense (17 ) (19 ) (22 ) (12 ) Loss before tax benefit/(provision) $ (839 ) $ (948 ) $ (275 ) $ (651 ) Year Ended December 31, 2022 Compared to Year Ended December 31, 2021 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, administrative fees, and website hosting services.
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.
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. 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. 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 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, LLC., 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. 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.
Selling and Marketing Selling and marketing expenses consist primarily of direct and channel sales representative salaries and benefits, 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.
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.
Other Expense Other 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 expense and net foreign exchange gains or losses, offset by credit card cash back rewards.
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, payment 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.
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.
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. 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. 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.
OFF BALANCE SHEET ARRANGEMENTS As of December 31, 2022, 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, 2023, we are not involved in any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.
Research and Development Research and development expenses primarily consists of salaries, wages and benefits, share-based compensation, and outsourcing engineering services related to the development of our software solutions.
Research and Development Research and development expenses primarily consists of salaries, benefits, bonuses, share-based compensation, and outsourcing engineering services related to the development of our software solutions.
We recognized impairment losses of $69,000 and $0 in the Consolidated Statements of Operations for the years ended December 31, 2022 and 2021, respectively. Deferred Taxes Our provision for income taxes is comprised of a current and a deferred portion.
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.
GAAP Net Income to EBITDA to Adjusted EBITDA (Unaudited) Three Months Ended December 31, Year Ended December 31, 2022 2021 2022 2021 (In thousands) (In thousands) U.S.
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.
Therefore, the sums of quarterly earnings per common share amounts do not necessarily equal the total for the twelve month periods presented. 35 Table of Contents Year Ended December 31, 2022 Compared to Year Ended December 31, 2022 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. 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.
Below is a table which displays the Cloud Telecommunications segment revenue backlog as of December 31, 2022 and 2021, 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, 2022 $ 32,016 Cloud Telecommunications Services backlog as of December 31, 2021 $ 30,190 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 and benefits, and share-based compensation.
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.
General and Administrative General and administrative expenses consist of salaries, benefits and stock 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 intangibles, and other administrative corporate expenses.
As of December 31, 2022, 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, 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.
GAAP net income/(loss) before interest expense, interest income and other expense/(income), goodwill and long-lived asset impairments, provision/(benefit) for income taxes, and depreciation and amortization. We believe EBITDA provides a useful metric to investors to compare us with other companies within our industry and across industries.
GAAP net income/(loss) before interest expense, interest income and other expense/(income), the gain/(loss) on the sale of property and equipment, goodwill and long-lived asset impairments, provision/(benefit) for income taxes, and depreciation and amortization. We believe EBITDA provides a useful metric to investors to compare us with other companies within our industry and across industries.
We compensate for these limitations by relying primarily on our U.S. GAAP results and using Non-GAAP net income, EBITDA, and Adjusted EBITDA only as supplemental support for management’s analysis of business performance.
We compensate for these limitations by relying primarily on our U.S. GAAP results and using Non-GAAP net income, EBITDA, and Adjusted EBITDA only as supplemental support for management’s analysis of business performance. Non-GAAP net income, EBITDA and Adjusted EBITDA are calculated as follows for the periods presented.
Below is a table which displays the Software Solutions segment revenue backlog as of December 31, 2022 and 2021, which we expect to recognize as revenue within the next thirty-six months (in thousands): Software Solutions backlog as of December 31, 2022 $ 14,830 Software Solutions backlog as of December 31, 2021 $ 11,528 48 Table of Contents Selling and Marketing Selling and marketing expenses consist primarily of sales and marketing salaries and benefits, commissions, share-based compensation, travel expenses, lead generation services, trade shows, third-party marketing services, the production of marketing materials, and sales support software.
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.
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 $3,179,000 at December 31, 2022. 40 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 $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.
For the year ended December 31, 2022, we recorded additional valuation allowance of $1,681,000 and for the year ended December 31, 2021, we recorded additional valuation allowance of $1,437,000. 36 Table of Contents 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, 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.
Cost of Software Solutions Revenue Cost of software solutions revenue consists primarily of salaries and benefits, amortization expense related to the technology, cost of Data Center hosting, third-party software modules and outsourced services required to install and support software solutions.
Cost of Software Solutions Revenue Cost of software solutions revenue consists primarily of salaries, benefits, bonuses, and amortization expense related to the technology, cost of data center hosting, third-party software modules, annual user group meeting costs, and outsourced services required to install and support software solutions.
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 also charge other various contracted and non-contracted fees.
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.
Reconciliation of U.S. GAAP Net Income to Non-GAAP Net Income (Unaudited) Three Months Ended December 31, Year Ended December 31, 2022 2021 2022 2021 (In thousands) (In thousands) U.S.
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.
The discount rate utilized in the DCF analysis is based on the reporting unit’s weighted-average cost of capital, which takes into account the relative weights of each component of capital structure (equity and debt) and represents the expected cost of new capital, adjusted as appropriate to consider the risk inherent in future cash flows of the Company’s reporting unit. 39 Table of Contents Impairment assessment inherently involves management judgments regarding a number of assumptions described above.
The discount rate utilized in the DCF analysis is based on the reporting unit’s weighted-average cost of capital, which takes into account the relative weights of each component of capital structure (equity and debt) and represents the expected cost of new capital, adjusted as appropriate to consider the risk inherent in future cash flows of the Company’s reporting unit.
We define Adjusted EBITDA as EBITDA adjusted for acquisition related expenses, changes in fair value of contingent consideration and share-based compensation. We use Adjusted EBITDA as a supplemental measure to review and assess operating performance. We also believe use of Adjusted EBITDA facilitates investors’ use of operating performance comparisons from period to period, as well as across companies.
We define Adjusted EBITDA as EBITDA adjusted for acquisition related expenses, changes in fair value of contingent consideration and share-based compensation. We use Adjusted EBITDA as a supplemental measure to review and assess operating performance.
The following table reflects our net cash provided by financing activities for the year ended December 31, 2022, compared to the year ended December 31, 2021: Year Ended December 31, 2022 2021 Dollar Change Percent Change Net cash provided by/(used in) financing activities $ (54 ) $ 650 $ (704 ) -108 % Net cash used in financing activities in the year ended December 31, 2022, primarily relates to cash proceeds from the exercise of stock options of $816,000 and proceeds from the line of credit of $82,000, offset by dividend payments of $462,000, payments of employee tax withholdings related to the net settlement of stock options and RSUs of $290,000, and repayments made on finance leases and notes payable of $200,000.
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.
We develop an estimate of the number of share-based awards that will be forfeited due to employee turnover. We will continue to use judgment in evaluating the expected term, volatility, and forfeiture rate related to our own share-based awards on a prospective basis, and in incorporating these factors into the model.
We will continue to use judgment in evaluating the expected term, volatility, and forfeiture rate related to our own share-based awards on a prospective basis, and in incorporating these factors into the model.
The following table reflects our product revenue for the year ended December 31, 2022, compared to the year ended December 31, 2021: 43 Table of Contents Year Ended December 31, 2022 2021 Dollar Change Percent Change Product revenue $ 2,891 $ 2,324 $ 567 24 % 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, 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.
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 75%, or $6,482,000 to $15,148,000 for the year ended December 31, 2022 as compared to $8,666,000 for the year ended December 31, 2021.
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.
Non-GAAP net income, EBITDA and Adjusted EBITDA are calculated as follows for the periods presented. 37 Table of Contents Reconciliation of Non-GAAP Financial Measures In accordance with the requirements of Regulation G issued by the SEC, we are presenting the most directly comparable U.S. GAAP financial measures and reconciling the unaudited Non-GAAP financial metrics to the comparable U.S. GAAP measures.
Reconciliation of Non-GAAP Financial Measures In accordance with the requirements of Regulation G issued by the SEC, we are presenting the most directly comparable U.S. GAAP financial measures and reconciling the unaudited Non-GAAP financial metrics to the comparable U.S. GAAP measures. Reconciliation of U.S.
A substantial portion of Cloud Telecommunications service revenue is generated through thirty-six to sixty months 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.
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.
The reporting unit fair value also depends on the future strength of the U.S. economy. New and developing competition as well as technological change could also adversely affect future fair value estimates.
Impairment assessment inherently involves management judgments regarding a number of assumptions described above. The reporting unit fair value also depends on the future strength of the U.S. economy. New and developing competition as well as technological change could also adversely affect future fair value estimates.
As of December 31, 2022 and 2021, we had cash and cash equivalents of $5,475,000 and $7,468,000, respectively.
As of December 31, 2023 and 2022, we had cash and cash equivalents of $10,347 and $5,475, respectively.
For the year ended December 31, 2022, quarterly dividends of $0.005 were declared and paid, however we have assumed a 0% dividend yield for the year ended December 31, 2022. For the years ended December 31, 2021, no dividends were declared or paid, therefore we have assumed a 0% dividend yield.
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, 2023.
The following table reflects our cost of product revenue for the year ended December 31, 2022, compared to the year ended December 31, 2021: Year Ended December 31, 2022 2021 Dollar Change Percent Change Cost of product revenue $ 1,637 $ 1,525 $ 112 7 % The increase is primarily related to the increase in product revenue and an increase in device costs, and additional cost of product revenue of $105,000 contributed by our November 1, 2022 acquisition of Allegiant Networks, LLC.
The following table reflects our cost of 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 Cost of product revenue $ 3,331 $ 1,637 $ 1,694 103 % The increase is primarily related to an increase of $269 from our organic product revenue growth and an increase in additional cost of product revenue of $1,425 contributed by our November 1, 2022 acquisition of Allegiant Networks during the year ended December 31, 2023.
The following table reflects our research and development expense for the year end December 31, 2022, compared to the year ended December 31, 2021: Year Ended December 31, 2022 2021 Dollar Change Percent Change Research and development $ 2,689 $ - $ 2,689 - 49 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 and general and administrative expenses after carefully reviewing operating expenses that qualify as research and development operating expenses.
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.
Software and services may be sold separately or in bundled packages. Generally, contracts with customers contain multiple performance obligations, consisting of software and services.
Generally, contracts with customers contain multiple performance obligations, consisting of software and services.
RELATED PARTY TRANSACTIONS None 51 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.
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.
Additionally, there was a decrease in corporate insurance costs of $91,000 and a decrease in other general and administrative expenses of $31,000. Research and Development Research and development expenses primarily consist of salaries and benefits, share-based compensation, and 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, outsourced engineering services related to the development of new cloud telecommunications features and products.
Backlog Backlog represents the total contract value of all contracts signed, less revenue recognized from those contracts as of December 31, 2022 and 2021. Backlog increased 29%, or $3,302,000 to $14,830,000 as of December 31, 2022 as compared to $11,528,000 as of December 31, 2021.
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.
GAAP net loss $ (32,601 ) $ (602 ) $ (35,413 ) $ (2,445 ) Share-based compensation 1,612 478 4,374 1,628 Acquisition related expenses 24 (28 ) 55 1,037 Change in fair value of contigent consideration - 126 - 126 Goodwill and long-lived asset impairment 32,678 - 32,678 - Amortization of intangible assets 786 618 2,435 1,391 Non-GAAP net income $ 2,499 $ 592 $ 4,129 $ 1,737 Non-GAAP net income per common share: Basic $ 0.10 $ 0.03 $ 0.18 $ 0.09 Diluted $ 0.09 $ 0.02 $ 0.16 $ 0.07 Weighted-average common shares outstanding: Basic 24,423,030 21,792,137 22,939,514 20,275,691 Diluted 26,633,630 26,068,825 25,783,179 23,408,162 Reconciliation of U.S.
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.
The following table reflects our other expense for the year ended December 31, 2022, compared to the year ended December 31, 2021: Year Ended December 31, 2022 2021 Dollar Change Percent Change Other expense $ (71 ) $ (70 ) $ (1 ) 1 % Operating Results of our Software Solutions Segment (in thousands): Year Ended December 31, Software Solutions 2022 2021 Software solutions revenue $ 15,148 $ 8,666 Operating expenses: Cost of software solutions revenue 5,336 4,031 Selling and marketing 4,491 2,345 General and administrative 3,538 2,457 Research and development 2,689 - Goodwill impairment 32,609 - Total operating expenses 48,663 8,833 Operating loss (33,515 ) (167 ) Other income/(expense) 1,288 (30 ) Loss before tax benefit $ (32,227 ) $ (197 ) 46 Table of Contents Quarterly Financial Information 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 ) For the three months ended Software Solutions March 31, June 30, September 30, December 31, 2021 2021 2021 2021 Software solutions revenue $ - $ 1,012 $ 3,784 $ 3,870 Operating expenses: Cost of software solutions revenue - 526 1,675 1,830 Selling and marketing - 389 798 1,158 General and administrative - 412 1,005 1,040 Research and development - - - - Total operating expenses - 1,327 3,478 4,028 Operating income/(loss) - (315 ) 306 (158 ) Other expense - - (19 ) (11 ) Income/(loss) before tax benefit/(provision) $ - $ (315 ) $ 287 $ (169 ) 47 Table of Contents Year Ended December 31, 2022 Compared to Year Ended December 31, 2021 Software Solutions Revenue Software solutions revenue consists primarily of software license fees, subscription maintenance and support, and professional services.
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.
Income Tax Benefit The following table reflects our income tax benefit/(provision) for the year ended December 31, 2022, compared to the year ended December 31, 2021: Year Ended December 31, 2022 2021 Dollar Change Percent Change Income tax benefit $ 762 $ 465 $ 297 64 % We had pre-tax loss for the year ended December 31, 2022 and 2021 of $(36,175,000) and $(2,910,000), respectively.
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.
The following table reflects our net cash provided by/(used in) operating activities for the year ended December 31, 2022, compared to the year ended December 31, 2021: Year Ended December 31, 2022 2021 Dollar Change Percent Change Net cash used in operating activities $ (411 ) $ (1,006 ) $ 595 -59 % The net cash used in operations was primarily driven by our net loss for the year ended December 31, 2022 of $(35,413,000), an increase in contract costs, an increase in equipment financing receivables, an increase in other assets, a decrease in contract liabilities, and non-cash other income related to the release of a sales tax accrual, offset by non-cash expenses for impairment, depreciation, amortization, and share-based compensation.
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 following table reflects our research and development expenses for the year ended December 31, 2022, compared to the year ended December 31, 2021: Year Ended December 31, 2022 2021 Dollar Change Percent Change Research and development $ 1,266 $ 1,396 $ (130 ) -9 % The decrease in research and development expenses is primarily related to a decrease in costs for maintenance on our mobile applications and other development costs of $117,000 and a decrease in salaries, wages and benefits of $13,000.
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 increase in revenue is primarily related to organic growth, twelve months of software solutions revenue compared to only seven months in the prior year, and two months of Allegiant Networks revenue. The increase in other income, net is primarily related to releasing a sales tax accrual.
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 operating expenses is primarily related to goodwill and long-lived asset impairment, increases in salaries and benefits, stock compensation expense, twelve months of software solutions operating expenses compared to only seven months in the prior year, and two months of Allegiant Networks operating expenses.
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.
The following table reflects our service revenue for the year ended December 31, 2022, compared to the year ended December 31, 2021: Year Ended December 31, 2022 2021 Dollar Change Percent Change Service revenue $ 19,515 $ 17,102 $ 2,413 14 % The increase in service revenue is due to an increase in organic telecommunications services of $517,000, an increase in fees, commissions, and other, recognized over time of $45,000, an increase in one-time fees, commissions and other of $255,000, an increase in sales-type lease interest of $69,000, and two months of service revenue of $1,527,000 contributed by our acquisition of Allegiant Networks, LLC on November 1, 2022.
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.
Results of Consolidated Operations (in thousands, except for per share amounts) Year Ended December 31, Consolidated 2022 2021 Service revenue $ 19,515 $ 17,102 Software solutions revenue 15,148 8,666 Product revenue 2,891 2,324 Total revenue 37,554 28,092 Loss before income taxes (36,175 ) (2,910 ) Income tax benefit 762 465 Net loss (35,413 ) (2,445 ) Basic earnings per common share $ (1.54 ) $ (0.12 ) Diluted earnings per common share $ (1.54 ) $ (0.12 ) 34 Table of Contents 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 Loss before income taxes (1,421 ) (978 ) (728 ) (33,048 ) Income tax benefit 201 82 32 447 Net 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 ) For the three months ended March 31, June 30, September 30, December 31, Consolidated 2021 2021 2021 2021 Service revenue $ 4,139 $ 4,327 $ 4,325 $ 4,311 Software solutions revenue - 1,012 3,784 3,870 Product revenue 368 440 701 815 Total revenue 4,507 5,779 8,810 8,996 Income/(loss) before income taxes (839 ) (1,263 ) 12 (820 ) Income tax benefit/(provision) 124 260 (137 ) 218 Net loss (715 ) (1,003 ) (125 ) (602 ) Basic earnings per common share (1) $ (0.04 ) $ (0.05 ) $ (0.01 ) $ (0.03 ) Diluted earnings per common share (1) $ (0.04 ) $ (0.05 ) $ (0.01 ) $ (0.03 ) ——————— (1) Earnings per common share is computed independently for each of the quarters presented.
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.
Loss Before Income Taxes The following table reflects our income/(loss) before income taxes for the year ended December 31, 2022, compared to the year ended December 31, 2021: Year Ended December 31, 2022 2021 Dollar Change Percent Change Loss before income taxes $ (36,175 ) $ (2,910 ) $ (33,265 ) 1143% The increase in loss before income tax is primarily due to an increase in operating expenses of $44,044,000, offset by an increase in revenue of $9,462,000 and an increase in other income, net of $1,317,000.
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.
GAAP net loss $ (32,601 ) $ (602 ) $ (35,413 ) $ (2,445 ) Depreciation and amortization 885 695 2,747 1,626 Interest expense 21 20 78 84 Interest income and other expense/(income) (1,576 ) 3 (1,295 ) 16 Goodwill and long-lived asset impairment 32,678 - 32,678 - Income tax benefit (447 ) (218 ) (762 ) (465 ) EBITDA (1,040 ) (102 ) (1,967 ) (1,184 ) Acquisition related expenses 24 (28 ) 55 1,037 Change in fair value of contingent consideration - 126 - 126 Share-based compensation 1,612 478 4,374 1,628 Adjusted EBITDA $ 596 $ 474 $ 2,462 $ 1,607 38 Table of Contents 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) $ 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.
Our solutions currently support over three million end users globally. The Company has two operating segments, which consist of Cloud Telecommunications Services and Software Solutions. 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: 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.
The following table reflects our selling and marketing expenses for the year ended December 31, 2022, compared to the year ended December 31, 2021: Year Ended December 31, 2022 2021 Dollar Change Percent Change Selling and marketing $ 7,234 $ 5,915 $ 1,319 22 % The increase in selling and marketing expense is due to an increase in salaries, wages and benefits of $437,000 related to expansion of our sales team, an increase in commission expense of $223,000 directly related to the increase in revenue, an increase in travel related costs and tradeshows of $185,000, and additional selling and marketing expense of $540,000 contributed by our November 1, 2022 acquisition of Allegiant Networks, LLC, offset by a decrease in sales leads and marketing material costs of $48,000 and a decrease in other sales and marketing expense of $18,000.
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.
We generate product revenue, equipment financing revenue, and device as a service revenue from the sale and lease of our cloud telecommunications equipment.
We also charge other various contracted and non-contracted fees. We generate product revenue, equipment financing revenue, and device as a service revenue from the sale and lease of our cloud telecommunications equipment. Revenues from the sale of equipment, including those from sales-type leases, are recognized at the time of sale or at the inception of the lease, as appropriate.
In our March 14, 2023 earnings press release, as furnished on Form 8-K, we included Non-GAAP net income, EBITDA and Adjusted EBITDA. The terms Non-GAAP net income, EBITDA, and Adjusted EBITDA are not defined under U.S.
The terms Non-GAAP net income, EBITDA, and Adjusted EBITDA are not defined under U.S.
The following table reflects our service revenue for the year ended December 31, 2022, compared to the year ended December 31, 2021: Year Ended December 31, 2022 2021 Dollar Change Percent Change Software solutions revenue $ 15,148 $ 8,666 $ 6,482 75 % The increase in software solutions revenue is primarily related to comparing twelve months of operating activity for the year ended December 31, 2022 to seven months of operating activity for the year ended December 31, 2021, from the acquisition date of June 1, 2021.
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 cost of service revenue for the year ended December 31, 2022, compared to the year ended December 31, 2021: Year Ended December 31, 2022 2021 Dollar Change Percent Change Cost of software solutions revenue $ 5,336 $ 4,031 $ 1,305 32 % The increase in cost of software solutions revenue is primarily related to comparing twelve months of operating activity for the year ended December 31, 2022 to seven months of operating activity for the year ended December 31, 2021, from the acquisition date of June 1, 2021 and the reclassification of expenses from cost of service revenue to research and development after carefully reviewing expenses that qualify as research and development operating expenses.
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.
Our Cloud Telecommunications product revenue increased 24% or $567,000 to $2,891,000 for the year ended December 31, 2022 as compared to $2,324,000 for the year ended December 31, 2021. Software Solutions – Our software solutions segment derives revenues from three primary sources: software licenses, software maintenance support and professional services.
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.
The following table reflects our general and administrative expenses for the year ended December 31, 2022, compared to the year ended December 31, 2021: Year Ended December 31, 2022 2021 Dollar Change Percent Change General and administrative $ 3,538 $ 2,457 $ 1,081 44 % The increase in general and administrative expenses is primarily related to comparing twelve months of operating activity for the year ended December 31, 2022 to seven months of operating activity for the year ended December 31, 2021, from the acquisition date of June 1, 2021 and the reclassification of expenses from general and administrative to research and development after carefully reviewing expenses that qualify as research and development operating expenses.
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 general and administrative expenses for the year ended December 31, 2022, compared to the year ended December 31, 2021: Year Ended December 31, 2022 2021 Dollar Change Percent Change General and administrative $ 9,366 $ 8,129 $ 1,237 15 % 45 Table of Contents The increase in general and administrative expenses is primarily due to an increase in administrative salaries, wages and benefits of $1,959,000 as a result of an increase in headcount, increase in stock compensations, and company-wide salary increases.
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.
Net cash provided by financing activities in the year ended December 31, 2021, primarily relates to cash proceeds from the exercise of stock options of $1,729,000 offset by the payments of employee tax withholdings related to the net settlement of stock options and RSUs of $163,000, and contingent consideration payment of $746,000 related to the Centric business acquisition.
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.
The following table reflects our cost of service revenue for the year ended December 31, 2022, compared to the year ended December 31, 2021: Year Ended December 31, 2022 2021 Dollar Change Percent Change Cost of service revenue $ 6,711 $ 5,104 $ 1,607 31 % The increase in cost of service revenue was primarily due to an increase in salaries, wages and benefits of $681,000 as a result of an increase in customer support and implementation specialist headcount, an increase in professional consulting services of $201,000, an increase in other cost of service revenue of $49,000, and additional cost of service revenue of $1,003,000 contributed by our November 1, 2022 acquisition of Allegiant Networks, LLC, offset by a $327,000 decrease in third-party telecommunications carrier costs. 44 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, 2023, compared to the year ended December 31, 2022: Year Ended December 31, 2023 2022 Dollar Change Percent Change Cost of service revenue $ 12,606 $ 6,711 $ 5,895 88 % The increase in cost of service revenue was primarily related to additional cost of service revenue of $5,439 contributed by our November 1, 2022 acquisition of Allegiant Networks during the year ended December 31, 2023.
The following table reflects our selling and marketing expenses for the year ended December 31, 2022, compared to the year ended December 31, 2021: Year Ended December 31, 2022 2021 Dollar Change Percent Change Selling and marketing $ 4,491 $ 2,345 $ 2,146 92 % The increase in selling and marketing expenses is primarily related to comparing twelve months of operating activity for the year ended December 31, 2022 to seven months of operating activity for the year ended December 31, 2021, from the acquisition date of June 1, 2021.
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 total revenue for the year ended December 31, 2022, compared to the year ended December 31, 2021: Year Ended December 31, 2022 2021 Dollar Change Percent Change Total revenue $ 37,554 $ 28,092 $ 9,462 34 % The increase in total revenue for the year is mainly driven by an additional $6,482,000 contributed from our software solutions segment for a full year compared to only seven months of revenue in the prior year resulting from the June 1, 2021 acquisition of NetSapiens, Inc., an increase in service revenue and product revenue of $1,755,000 contributed from our November 1, 2022 acquisition of Allegiant Networks, LLC , and an increase in organic service and product revenue of $1,225,000 for the year compared to 2021.
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.
Backlog increased 6%, or $1,826,000 to $32,016,000 as of December 31, 2022 as compared to $30,190,000 as of December 31, 2021.
Backlog increased 29%, or $4,292 to $19,122 as of December 31, 2023 as compared to $14,830 as of December 31, 2022.
Our November 1, 2022 acquisition of Allegiant Networks, LLC contributed $228,000 of the increase in product revenue. Backlog Backlog represents the total contract value of all contracts signed, less revenue recognized from those contracts as of December 31, 2022 and 2021.
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.
The following table reflects our net cash provided by/(used in) investing activities for the year ended December 31, 2022, compared to the year ended December 31, 2021: Year Ended December 31, 2022 2021 Dollar Change Percent Change Net cash used in investing activities $ (1,703 ) $ (9,867 ) $ 8,164 -83 % 50 Table of Contents During the year ended December 31, 2022, the Company acquired 100% of the issued and outstanding shares of Allegiant Networks, LLC., a provider of telecommunications products, services, and solutions in Kansas and Missouri.
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.
Removed
Revenues from the sale of equipment, including those from sales-type leases, are recognized at the time of sale or at the inception of the lease, as appropriate. 33 Table of Contents Our Cloud Telecommunications service revenue increased 14% or $2,413,000 to $19,515,000 for the year ended December 31, 2022 as compared to $17,102,000 for the year ended December 31, 2021.
Added
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.
Removed
The year ended December 31, 2021 includes only seven months of revenue from the NetSapiens acquisition date of June 1, 2021. 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.
Added
We may also charge activation and flash fees and the Company generally allocates a portion of the activation fees to the desktop devices, which is recognized at the time of the installation or customer acceptance, and a portion to the service, which is recognized over the contract term using the straight-line method.
Removed
There were additional general and administrative expenses of $382,000 contributed by our November 1, 2022 acquisition of Allegiant Networks, LLC. This was offset by a decrease in acquisition related legal, accounting, and other professional services of $982,000 in connection with the 2021 NetSapiens acquisition.
Added
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.
Removed
Investing Activities Cash provided by or used in investing activities is driven by the purchase of property and equipment, business combinations, and asset acquisitions.
Added
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.
Removed
Of the aggregate purchase price of $9.4 million, the Company paid $2.0 million of cash at closing, net of cash acquired of $586,000. Additionally, during the year ended December 31, 2022, we purchased $289,000 of property and equipment.
Added
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.
Removed
During the year ended December 31, 2021, the Company acquired 100% of the issued and outstanding shares of Centric Telecom, Inc., a provider of telecommunications products, services, and solutions in Northern Virginia.
Added
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.
Removed
The aggregate purchase price of $3,255,000 consisted of $2,163,000 of cash paid at closing, 46,662 shares of our common stock with an estimated fair value of $346,000 issued at closing, and $746,000 of contingent consideration, which was paid out after the completion of the earn-out period in the fourth quarter of 2021.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

1 edited+0 added−0 removed3 unchanged
Biggest changeOur inability or failure to do so could harm our business, financial condition and results of operations. 52 Table of Contents
Biggest changeOur inability or failure to do so could harm our business, financial condition and results of operations. 45 Table of Contents

Other CXDO 10-K year-over-year comparisons