Annual Report for Fiscal Year Ending 12-31, 2025 (Form 10-K)

ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(All currency is rounded to the nearest thousands, except share and per share amounts.)

The following discussion should be read in conjunction with the financial statements and related notes for the years ended December 31, 2025 and 2024, which are included elsewhere in this Report. This Management's Discussion and Analysis of Financial Condition and Results of Operations contains statements that are forward-looking. These statements are based on current expectations and assumptions that are subject to risk, uncertainties and other factors. These statements are often identified by the use of words such as "may," "will," "expect," "believe," "anticipate," "intend," "could," "estimate," or "continue," and similar expressions or variations.

You should review the "Cautionary Note Regarding Forward-Looking Statements; Risk Factor Summary", and "Risk Factors" sections of this Report for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements described in the following discussion and analysis.

Overview

The Company transforms environments through digital solutions by providing innovative digital signage solutions for key market segments and use cases, including:

	●	Retail
	●	Entertainment and Sports Venues
	●	Restaurants, including QSRs
	●	Convenience Stores
	●	Financial Services
	●	Automotive
	●	Lottery
	●	Mixed Use Developments
	●	DOOH Advertising Networks

We serve market-leading companies, so there is a good chance that if you leave your home today to shop, work, eat or play, you will encounter one or more of our digital signage experiences. Our solutions are increasingly visible because we help our enterprise customers achieve a range of business objectives including:

●

Increased brand awareness;

	●	Improved customer support;
	●	Enhanced employee productivity and satisfaction;
	●	Increased revenue and profitability;
	●	Improved guest experience; and
	●	Increased customer/guest engagement.
	●	Traffic content and advertising

Through a combination of organically grown platforms and a series of strategic acquisitions, the Company assists customers to design, deploy, manage, and monetize their digital signage and in-store retail media networks. The Company sources leads and opportunities for its solutions through its digital and content marketing initiatives, close relationships with key industry partners, specifically equipment manufacturers, and the direct efforts of its in-house industry sales experts. Customer engagements focus on consultative conversations that ensure the Company's solutions are positioned to help customers achieve their business objectives in the most cost-effective manner possible.

When comparing us to other digital signage providers, our customers value the following competitive advantages:

●

Breadth of solutions - Creative Realities offers a wide breadth of solutions to our customers. Creative Realities is one of only a few companies in the industry capable of providing the full portfolio of products and services required to implement and run an effective digital signage and in-store retail media networks. We leverage a 'single vendor' approach, providing customers with a one-stop-shop for sourcing digital signage and media solutions from design through day two services.

●

Managed labor pool - Unlike most companies in our industry, we have a curated labor pool of qualified and vetted field technicians available to service customers quickly nationwide. We can meet tight schedules even in exceptionally large deployments and still ensure quality and consistency.

	●	In-house creative resources - We assist customers in creating new content or repurposing existing content for digital signage experiences, an activity for which the Company has won several design awards in recent years. In each instance, our services can be essential in helping customers develop an effective content program.
	●	Network scalability and reliability - Our SaaS content management platforms power some of the largest and most complex digital signage networks in North America, evidencing our ability to manage enterprise scale projects. This also provides us purchasing power to source products and services for our customers, enabling us to deliver cost effective, reliable and powerful solutions to small and medium size business customers.
	●	AdTech platforms - The Company has developed and deployed the AdLogic and CPM+ platforms, which, working in conjunction with our CMS platforms, present completely integrated digital advertising solutions for existing and prospective customers seeking to monetize their in-store retail media networks. These platforms anchor the Company's vertical expansion into AdTech bringing new, and expanding existing, addressable markets.
	●	Market sector expertise - Creative Realities has in-house experts in key market segments such as retail, QSRs, convenience stores, and DOOH advertising. Our expertise in these business segments enable our teams to provide meaningful business conversations and offer tailored solutions with prospects and customers to their unique business objectives. These experts build industry relationship and create thought leadership that drives lead flow and new opportunities for our business.
	●	Logistics - Implementing a large digital signage project can be a logistical nightmare that can stall an initiative, even before deployment. Our expertise in logistics improves deployment efficiency, reduces delays and problems, and saves customers time and money.
	●	Technical support - Digital signage networks present unique challenges for corporate IT departments. We simplify and improve end user support by leveraging our own NOC in Louisville, Kentucky. The NOC resolves many issues remotely and when field support is required, it can be dispatched quickly from the NOC, leveraging our managed labor pool to resolve customer issues quickly and effectively.

	●	Integrations and Application Development - The future of digital signage is not still images and videos on a screen. We believe that interactive applications and integrations with other data sources will dominate the future. From social media feeds, mobile integrations, corporate data stores, or POS systems, our proven ability to build scalable applications and integrations is a key advantage that customers can leverage to deliver more compelling and engaging experiences for their customers.
	●	Hardware support - A number of digital signage providers sell a proprietary media player or align themselves with just one operating system. We utilize a range of media players including Windows, Android and BrightSign to provide customers the flexibility they need to select the appropriate hardware for any application knowing the entire network can still be served by a single digital signage platform, reducing complexity and improving the productivity of our customers.
	●	Retail Media Network - The Company owns and operates the largest mall shopping network in Canada.

Our Sources of Revenue

The three primary sources of revenue for the Company are:

●

Hardware sales from reselling digital signage hardware from original equipment manufacturers such as Samsung and BrightSign.

●

Services revenue from helping customers design, deploy and manage their digital signage and in-store retail media networks, including:

	○	Hardware system design/engineering
	○	Hardware installation
	○	Content development
	○	Content scheduling
	○	Post-deployment network and field support
	○	AdTech to traffic advertising and content directly and through programmatic channels

●

Recurring subscription licensing and support revenue from our digital signage software platforms, which are generally sold via a SaaS model. Our platforms:

	○	ReflectView, the Company's core digital signage platform for most applications, scalable and cost effective from 10 to 100,000+ devices;
	○	Reflect Xperience, a web-based interface that allows customers to give content scheduling access to local users via the web or mobile devices, while still maintaining centralized programming control;
	○	AdLogic, the Company's ad management platform for digital signage networks, which presently delivers approximately 50 million ads daily;
	○	Clarity, the Company's digital signage platform for menu board solutions, which has become a market leader for a range of restaurant, including QSR and convenience store applications; and
	○	iShowroomProX, an omni-channel digital sales support platform targeted at original equipment manufacturers in the transportation sector, which integrates with dozens of key data services including dealer inventory at the VIN level.

While hardware sales and support services revenues can fluctuate more significantly year over year based on new, large-scale network deployments, the Company is focusing on maintaining and increasing recurring SaaS revenue as digital signage adoption/utilization expands across the vertical markets we serve.

Our Operating Expenses

Our operating expenses are comprised of sales and marketing, and general and administrative expenses. Sales and marketing expenses include salaries and benefits for our sales, business development solution management and marketing personnel, and commissions paid on sales. This category also includes amounts spent on marketing networking events, promotional materials, hardware and software to prospective new customers, including those expenses incurred in trade shows and product demonstrations, and other related expenses. Our general and administrative expenses consist of corporate overhead, including administrative salaries, real property lease payments, salaries, and benefits for our corporate officers and other expenses such as legal and accounting fees.

Recent Developments

North Run Securities Purchase Agreement

On October 15, 2025, we entered into a Securities Purchase Agreement (the "Securities Purchase Agreement") with North Run Strategic Opportunities Fund I, LP (the "Lead Investor") and NR-SOF I (Co-Invest I), LP (together with the Lead Investor, the "Buyers"), each an affiliate of North Run Capital, LP ("North Run"), pursuant to which we agreed to sell in a private placement (the "Offering"), for an aggregate gross purchase price of $30,000, an aggregate of 30,000 shares of a newly established series of preferred stock, par value $0.01 per share, to be designated as Series A Convertible Preferred Stock (the "Preferred Shares"). On November 5, 2025, in anticipation of the closing of the Offering, we filed the Certificate of Designations with the Secretary of State of the State of Minnesota, which established the designations, preferences, powers and rights of the Preferred Shares. The closing of the purchase and sale of the Preferred Shares occurred on November 6, 2025. We used net proceeds from the Offering to pay a portion of the purchase price for our acquisition of the business of Cineplex Digital Media Inc. and its affiliates (the "CDM Acquisition"). See Note 9, Series A Redeemable Convertible Preferred Stock, for a description of the terms of the Securities Purchase Agreement.

CDM Acquisition

On October 15, 2025, the Company entered into a Share Purchase Agreement (the "Share Purchase Agreement") with its wholly owned subsidiary, 1001372953 Ontario Inc., an Ontario corporation and Cineplex Entertainment Limited Partnership, a Manitoba limited partnership ("Cineplex"), to acquire DDC Group International, Inc., an Ontario corporation and wholly owned subsidiary of Cineplex ("DDC"). DDC is the parent company of its wholly owned subsidiary, Cineplex Digital Media Inc., an Ontario corporation ("CDMI"), and CDMI's wholly owned subsidiary, Cineplex Digital Media US Inc., a Delaware corporation ("CDMUS"). In this Report, DDC, CDMI and CDMUS are collectively referred to as "CDM", and such acquisition is referred to as the "CDM Acquisition".

On November 7, 2025, the parties consummated the transactions contemplated by the Share Purchase Agreement. Upon the terms and conditions of the Share Purchase Agreement, at the closing of the CDM Acquisition, the Company (indirectly through 1001372953 Ontario Inc.) acquired ownership of all of the issued and outstanding capital shares of DDC for a total purchase price of approximately CAD $70,000, subject to customary purchase price adjustments. The final purchase price after adjustments was approximately CAD $60,263 (or approximately USD $42,761). See Note 5, Business Combinations, for a description of the terms of the Share Purchase Agreement.

Amended and Restated Credit Agreement

On November 6, 2025 (the "Refinancing Date"), the Company and certain of its subsidiaries entered into the Amended and Restated Credit Agreement (the "Amended Credit Agreement"), with FMB acting as agent ("Agent"), and a new syndicate of lenders ("Lenders") which included FMB and two additional creditors, Northwest Bank ("NWB") and Axos Bank ("Axos"; together with NWB, the "New Lenders"). In the ordinary course of its business, Agent has performed and may continue to perform commercial banking and financial services for the Company for which it has received and will continue to receive customary fees and expenses. The Amended Credit Agreement provides the Company, CDMI and CDMUS (collectively, "Borrowers") with two debt facilities, including a three-year term loan of $36,000 (the "Term Loan") and a three-year revolving debt arrangement of up to $22,500 (the "New Revolving Credit Facility"). The Term Loan and New Revolving Credit Facility in the Amended Credit Agreement both have maturity dates of November 6, 2028 (the "Maturity Date"), and are secured by all the assets of the Borrowers.

The Borrowers used a portion of the proceeds from the Term Loan to finance a portion of the purchase price for the CDM Acquisition (as defined below) and may use additional proceeds of the Term Loan and New Revolving Credit Facility to refinance certain indebtedness of the Borrowers, for working capital and for other general corporate purposes.

See Note 11, Debt, to the Consolidated Financial Statements for a description of the terms of the Amended Credit Agreement.

Results of Operations

Note: All dollar amounts reported in Results of Operations are in thousands, except per-share information.

Year Ended December 31, 2025 Compared to Year Ended December 31, 2024

The tables presented below compare our results of operations from one period to another and present the results for each period and the change in those results from one period to another in both dollars and percentage change.

		For The Years Ended
		December 31,
		2025				2024				Difference $				Difference %
Sales:
Hardware		$	21,232			$	18,259			$	2,973				16.3	%
Services and other			36,000				32,595				3,405				10.4	%
Total sales			57,232				50,854				6,378				12.5	%
Cost of sales:
Hardware			15,292				13,521				1,771				13.1	%
Services and other			16,226				13,322				2,904				21.8	%
Total cost of sales			31,518				26,843				4,675				17.4	%
Gross profit			25,714				24,011				1,703				7.1	%
Operating expenses:
Sales and marketing expenses			5,803				6,015				(212	)			(3.5	%)
General and administrative expenses			23,065				17,058				6,007				35.2	%
Loss on impairment of software asset			5,712				-				5,712				100.0	%
Total operating expenses			34,580				23,073				11,507				49.9	%
Operating (loss) income			(8,866	)			938				(9,804	)			(1045.2	%)
Other expenses (income):
Interest expense, including amortization of debt discount			2,479				1,775				704				39.7	%
Loss on change in fair value of contingent consideration			-				1,608				(1,608	)			(100.0	%)
Gain on settlement of contingent consideration			(4,775	)			-				(4,775	)			100.0	%
Loss on debt extinguishment			-				1,059				(1,059	)			(100.0	%)
Loss on debt modification			24				-				24				100.0	%
Other expenses (income), net			516				(102	)			618				(605.9	%)
Total other (income) expenses, net			(1,756	)			4,340				(6,096	)			(140.5	%)
Loss before income taxes			(7,110	)			(3,402	)			(3,708	)			109.0	%
Income tax expense			(1,166	)			(106	)			(1,060	)			1000.0	%
Net loss		$	(8,276	)		$	(3,508	)		$	(4,768	)			135.9	%

Sales

Sales increased by $6,378 or 12.5%, to $57,232 for the year ended December 31, 2025 compared to $50,854 for the year ended December 31, 2024. The increase was driven by the CDM Acquisition, which contributed $13,613 in total revenue from the November 7, 2025 acquisition date through December 31, 2025, partially offset by a decline in legacy CRI revenue on a standalone basis.

Hardware revenues were $21,232 for the year ended December 31, 2025, an increase of $2,973, or 16.3%, from $18,259 for the year ended December 31, 2024. The increase in hardware revenues was primarily driven by purchases from customers in our QSR and sports and entertainment verticals along with incremental hardware attributable to the CDM Acquisition. Services and other revenues were $36,000, an increase of $3,405, or 10.4%, from $32,595 in the prior year. Legacy CRI experienced a $9,000 decline in service revenues primarily attributable to fewer deployments during the period, a decline in media revenue as the Company exited the media business effective October 1, 2024, and lower SaaS subscription revenues. The decrease was offset by $12,577 of services and other revenues generated by CDM in the post-acquisition period.

Gross Profit

Gross profit increased $1,703, or 7%, to $25,714 for the year ended December 31, 2025 from $24,011 for the year ended December 31, 2024. Gross margin decreased to 44.9% from 47.2% The decline in gross margin percentage was primarily driven by the inclusion of CDM, which carries a different revenue and cost mix, as well as changes in product mix within legacy CRI operations, including higher-volume but lower-margin hardware deployments during the year.

Sales and Marketing Expenses

Sales and marketing expenses generally include the salaries, taxes, and benefits of our sales and marketing personnel, as well as trade show activities, travel, and other related sales and marketing costs. Sales and marketing expenses decreased by $212, or 3.5%, to $5,803 for the year ended December 31, 2025 compared to $6,015 for the year ended December 31, 2024. Legacy CRI sales and marketing expenses decreased approximately $780 primarily as a result of a decrease in fixed and variable salaries of our marketing personnel of $450 and decreased participation in tradeshows of $105. The decrease in legacy CRI results was offset by $582 of CDM expenses for the post-acquisition period.

General and Administrative Expenses

General and administrative expenses increased $6,007, or 35.2%, to $23,065 for the year ended December 31, 2025 compared to $17,058 for the year ended December 31, 2024. The increase was primarily attributable to (1) approximately $2,182 in stock-based compensation expense recognized in the current year in connection with equity awards granted in 2025, compared to $13 in the prior year, as all previously outstanding time-vested and performance awards were fully expensed as of December 31, 2024, (2) incremental general and administrative costs associated with CDM from the November 7, 2025 acquisition date of approximately $3,992 (3) Deal and other expenses related to the acquisition of CDM totaling $1,954, and (4) decrease in SG&A (excluding the effects of stock compensation and deal costs) of approximately $1,251 related to cost containment efforts related to legacy CRI. These included a $1,367 reduction in fixed and variable salaries, benefits, and payroll taxes for general and administrative personnel, as well as broad-based savings achieved across multiple spending categories. The Company implemented a number of low-cost restructuring measures and targeted vendor spend reductions, none of which were individually material, but which collectively contributed to a more efficient back-office cost structure. These actions were further supported by the retirement of legacy software platforms and the transition to a unified ERP system, which has enabled modest improvements in workflow efficiency and systems integration.

Loss on Impairment of Software Asset

During the year ended December 31, 2025, the Company recognized a $5,712 asset impairment charge related to a proprietary software platform capitalized as an intangible asset under ASC 350-40. The impairment was recorded after management determined that expected future cash flows associated with the platform were not sufficient to recover its carrying amount, primarily due to uncertainty regarding the renewal of an existing software license agreement. The uncertainty arose in September 2025 when the customer communicated that it was unable to renew their license agreement due to budget constraints, representing a triggering event under ASC 350-40. The impairment loss was measured as the excess of the asset's carrying amount over its estimated fair value, which was determined using an income approach based on discounted cash flows and Level 3 inputs under ASC 820. The impairment did not impact cash flows or liquidity, but it did result in a significant increase in total operating expenses for the year ended December 31, 2025.

Interest Expense

Interest expense, including amortization of debt discount, was $2,479 for the year ended December 31, 2025 compared to $1,775 for the same period in 2024, an increase of $704, or 39.7%. The modest year-over-year increase reflects higher outstanding debt balances following the November 2025 refinancing in connection with the CDM Acquisition, partially offset by lower amortization of debt discount ($27 in 2025 compared to $569 in 2024 as the prior debt discount was fully written off upon extinguishment of the Prior Credit Agreement in May 2024). See Note 11, Debt, to the Consolidated Financial Statements for a discussion of the Company's debt and related interest expense obligations.

Loss on Change in Fair Value of Contingent Consideration

The Company had a contingent consideration arrangement related to its acquisition of Reflect, which was recorded at fair value and remeasured at each reporting period using a Monte Carlo simulation model. During the year ended December 31, 2024, the Company recognized a $1,608 loss on the change in fair value of this contingent consideration. The contingent consideration was settled with a gain in 2025.

Gain on Settlement of Contingent Consideration

During the year ended December 31, 2025, the Company recognized a gain of $4,775 on settlement of contingent consideration, representing the excess of the carrying value of the contingent consideration liability over the fair value of the cash and equity consideration transferred in settlement. See Note 5, Business Combinations, to the Consolidated Financial Statements for further detail.

Loss on Debt Modification and Extinguishment

During the year ended December 31, 2025, the Company recognized a $24 loss on the modification of its revolving credit facility in connection with the Amended Credit Agreement in November 2025. During the year ended December 31, 2024, the Company recognized a $1,059 loss on extinguishment of debt equal to the remaining unamortized portion of debt discount associated with the prior term loans when the Company entered into the Prior Credit Agreement on May 23, 2024.

Other Expense (Income), Net

Other expense, net was $516 for the year ended December 31, 2025 compared to other income, net of $102 for the year ended December 31, 2024, a change of $618. Other expenses consist primarily of $293 in legal expenses incurred in connection with the contingent consideration settlement and a patent infringement claim and $283 in severance-related expenses in connection with the termination of certain employees as part of a cost-reduction initiative.

Supplemental Operating Results on a Non-GAAP Basis

The following non-GAAP data, which adjusts for the categories of expenses described below, is a non-GAAP financial measure. Our management believes that this non-GAAP financial measure is useful information for investors, shareholders and other stakeholders of our Company in gauging our results of operations on an ongoing basis. We believe that earnings before interest, depreciation, and amortization ("EBITDA") is a performance measure and not a liquidity measure, and therefore a reconciliation between net (loss) income, a GAAP financial measure, and EBITDA and Adjusted EBITDA has been provided. EBITDA should not be considered as an alternative to net (loss) income as an indicator of performance or as an alternative to cash flows from operating activities as an indicator of cash flows, in each case as determined in accordance with GAAP, or as a measure of liquidity. In addition, EBITDA does not take into account changes in certain assets and liabilities as well as interest and income taxes that can affect cash flows. We do not intend the presentation of these non-GAAP measures to be considered in isolation or as a substitute for results prepared in accordance with GAAP. These non-GAAP measures should be read only in conjunction with our Consolidated Financial Statements prepared in accordance with GAAP that are included elsewhere in this Report.

						Quarters Ended
		Year Ended				December 31,				September 30,				June 30,				March 31,
Quarters ended		2024				2024				2024				2024				2024
GAAP net (loss) income		$	(3,508	)		$	(2,838	)		$	54			$	(615	)		$	(109	)
Interest expense:
Amortization of debt discount			569				-				-				209				360
Other interest, net			1,206				296				303				304				303
Depreciation/amortization:
Amortization of intangible assets			3,877				1,128				1,081				878				790
Amortization of employee share-based awards			13				4				3				3				3
Depreciation of property and equipment			201				49				51				52				49
Income tax expense (benefit)			106				(120	)			192				25				9
EBITDA		$	2,464			$	(1,481	)		$	1,684			$	856			$	1,405
Adjustments
Loss (gain) on fair value of contingent consideration			1,608				2,022				598				(408	)			(604	)
Stock-based compensation - Director grants			1,059				-				-				1,059				-
Other (income) expense			(102	)			(74	)			(11	)			18				(35	)
Adjusted EBITDA		$	5,029			$	467			$	2,271			$	1,525			$	766

Liquidity and Capital Resources

See Note 1, Nature of Organization and Operations, to the accompanying Consolidated Financial Statements for a detailed discussion of liquidity and financial resources.

Operating Activities

Net cash used in operating activities was $7,750 for the year ended December 31, 2025 compared to net cash provided by operating activities of $3,381 for the year ended December 31, 2024. Cash used in 2025 was primarily attributable to a net loss of $8,276, adjusted for net non-cash charges of $12,021, offset by a $11,495 net decrease in cash from changes in operating assets and liabilities. Cash provided in 2024 was primarily attributable to a net loss of $3,508, adjusted for net non-cash charges of $7,675, offset by a $786 net decrease in cash from changes in operating assets and liabilities.

Investing Activities

Net cash used in investing activities was $40,477 for the year ended December 31, 2025 compared to $2,801 for the year ended December 31, 2024. The increase was primarily attributable to $37,983 in net cash paid for the CDM Acquisition on November 7, 2025 (net of cash acquired). Capitalization of internally developed software costs was $2,188 for the year ended December 31, 2025 compared to $2,790 for the year ended December 31, 2024, with the decrease reflecting the completion of the Company's automotive digital signage platform during the second quarter of 2024. Purchases of property and equipment were $306 for the year ended December 31, 2025 compared to $11 for the year ended December 31, 2024. The Company did not have any material commitments for capital expenditures as of December 31, 2025.

Financing Activities

Net cash provided by financing activities was $48,739 for the year ended December 31, 2025 compared to net cash used of $2,453 for the year ended December 31, 2024. Cash provided in 2025 was primarily driven by capital raised in connection with the CDM Acquisition, of which $30,000 represented gross proceeds from the sale of Series A Redeemable Convertible Preferred Stock (net of $2,544 in issuance costs) and $36,000 represented proceeds from the Term Loan under the Amended Credit Agreement. These inflows were partially offset by net repayments under the revolving credit facility of $8,105, a $3,000 cash payment in connection with the settlement of the contingent consideration liability, $2,272 in repayments of finance lease obligations, $850 in deferred financing costs, and $490 in scheduled term loan repayments. Cash used in 2024 was primarily attributable to $15,147 in repayments of term debt, partially offset by $13,044 in net borrowings under the revolving credit facility. See Note 11, Debt, to the Consolidated Financial Statements for further discussion.

Off-Balance Sheet Arrangements

During the year ended December 31, 2025, we did not engage in any off-balance sheet arrangements set forth in Item 303(a) (4) of Regulation S-K.

Contractual Obligations and Commitments

As of December 31, 2025, we had operating and finance lease obligations of approximately $23,912 payable over the next five years. These obligations relate primarily to corporate office space, warehousing and light-assembly facilities used to stage and deploy digital signage hardware, and leased equipment supporting our operations. Our contractual lease commitments increased materially during 2025 as a result of the CDM Acquisition on November 7, 2025, which added leases for the Waterloo, Ontario corporate office (operating lease) and two finance leases covering facilities and equipment with Cadillac Fairview and Cominar.

Critical Accounting Estimates

The preparation of financial statements and related disclosures are in conformity with U.S. GAAP. These accounting principles require us to make estimates and judgments that can affect the reported amounts of assets and liabilities as of the date of the financial statements, as well as the reported amounts of revenue and expense during the periods presented. We believe that the estimates and judgments upon which we rely are reasonable based upon information available to us at the time that we make these estimates and judgments. To the extent that there are material differences between these estimates and actual results, our financial results will be affected. The accounting policies that reflect our more significant estimates and judgments and which we believe are the most critical to aid in fully understanding and evaluating our reported financial results are described below.

We consider an accounting estimate to be critical if: (i) the accounting estimate requires us to make assumptions about matters that were highly uncertain at the time the accounting estimate was made, and (ii) changes in the estimate that are reasonably likely to occur from period to period or use of different estimates that we reasonably could have used in the current period, would have a material impact on our financial condition or results of operations.

Management has identified certain critical accounting estimates which are outlined below. In addition, there are other items within our financial statements that require estimation but are not deemed critical, as defined above. Changes in estimates used in these and other items could have a material impact on our financial statements.

Business Combinations

On November 7, 2025, the Company completed the CDM Acquisition and accounted for the transaction as a business combination under ASC 805, Business Combinations. The accounting for a business combination requires the Company to make significant estimates and assumptions to determine the fair values of assets acquired and liabilities assumed, especially with respect to intangible assets. These estimates are based on information available at the acquisition date and are inherently uncertain. The Company engaged a third-party valuation specialist to assist in the determination of fair values.

The key assumptions underlying the preliminary purchase price allocation include discount rates, projected revenue growth rates, customer attrition rates, royalty rates, and the remaining useful lives of identified intangible assets. The valuation of customer relationships utilized the multi-period excess earnings method, developed technology utilized the relief-from-royalty method, and non-compete agreements utilized the with-and-without method. Changes in the assumptions used to determine fair value could result in materially different asset and liability values, which would affect the amount of goodwill recognized and the amortization of intangible assets in future periods.

The purchase price allocation for the CDM Acquisition remains preliminary as of December 31, 2025 and is subject to adjustment during the measurement period, which extends through November 7, 2026. Preliminary fair values may be revised as additional information becomes available, including but not limited to the finalization of the valuation of identified intangible assets, the assessment of deferred tax assets and liabilities, and the resolution of post-closing working capital adjustments. See Note 5, Business Combinations, for additional information.

Goodwill

Goodwill is evaluated for impairment annually as of September 30 and whenever events or circumstances make it more likely than not that impairment may have occurred. We have no other indefinite-lived intangible assets. We have one reporting unit, and therefore the entire goodwill is allocated to that reporting unit.

Using the quantitative approach, fair value of the reporting unit is estimated using both (1) a market approach, leveraging recent industry merger and acquisition activity as well as comparable public company information, and (2) a discounted cash flow analyses consisting of various assumptions, including expectations of future cash flows based on projections or forecasts derived from analysis of business prospects and economic or market trends that may occur. We base our fair value estimates on assumptions we believe to be reasonable but that are unpredictable and inherently uncertain. If the carrying amount exceeds the fair value, further analysis is performed to measure the impairment loss.

Using the qualitative approach, the Company reviews macroeconomic conditions, industry and market conditions and entity specific factors, including strategies and financial performance for potential indicators of impairment.

Our market capitalization could fluctuate from time to time. Such fluctuation may be an indicator of possible impairment of goodwill if our market capitalization falls below its book value. If this situation occurs, we perform the required detailed analysis to determine if there is impairment.

No impairment was recorded as a result of our annual assessment completed as of September 30, 2025.

The valuation of goodwill is subject to a high degree of judgment, uncertainty and complexity. We believe the future estimates and assumptions used to test for impairment losses on goodwill are reasonable. However, if actual results are not consistent with our estimates or assumptions, we may be exposed to an impairment charge that could be material.

Impact of Recently Issued Accounting Pronouncements

Refer to Note 2, Summary of Significant Accounting Policies, in our Consolidated Financial Statements included in Part II, ITEM 8 of this Report, for a full description of recent accounting pronouncements, including the expected dates of adoption and estimated effects on results of operations and financial condition, which is incorporated herein by reference.