Quarterly Report for Quarter Ending June 30, 2026 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations.

All statements included in this section, other than statements or characterizations of historical fact, are forward-looking statements. These "forward looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, are based on our current expectations, estimates and projections about our industry, management's beliefs, and certain assumptions made by us, all of which are subject to change. Forward-looking statements can often be identified by words such as "anticipates," "expects," "intends," "plans," "predicts," "believes," "seeks," "estimates," "may" "will," "should," "would," "could," "potential," "continue," "ongoing," similar expressions, and variations or negatives of these words. These statements appear in a number of places and include statements regarding the intent, belief or current expectations of Bridgeline Digital, Inc. These forward-looking statements are not guarantees of future results and are subject to risks, uncertainties and assumptions, including, but not limited to, business operations and the business of our customers, suppliers and partners; our ability to retain and upgrade current customers; increasing our recurring revenue; our ability to attract new customers; our revenue growth rate; our history of net loss and our ability to achieve or maintain profitability; instability in the financial markets, including the banking sector; our liability for any unauthorized access to our data or our users' content, including through privacy and data security breaches; any decline in demand for our platform or products; changes in the interoperability of our platform across devices, operating systems, and third-party applications that we do not control; competition in our markets; our ability to respond to rapid technological changes, extend our platform, develop new features or products, or gain market acceptance for such new features or products, particularly in light of potential disruptions to the productivity of our employees resulting from remote work; our ability to manage our growth or plan for future growth, and our acquisition of other businesses and the potential of such acquisitions to require significant management attention, disrupt our business, or dilute stockholder value; the volatility of the market price of our common stock; the ability to maintain our listing on the NASDAQ Capital Market; or our ability to maintain an effective system of internal controls as well as other risks described in our filings with the Securities and Exchange Commission. Any of such risks could cause our actual results to differ materially and adversely from those expressed in any forward-looking statement. We urge readers to review carefully the risk factors described in our Annual Report on Form 10-K for the fiscal year ended September 30, 2025, as well as in the other documents that we file with the Securities and Exchange Commission.

This section should be read in combination with the accompanying unaudited condensed consolidated financial statements and related notes prepared in accordance with United States generally accepted accounting principles.

Overview

Bridgeline Digital is an AI-powered marketing technology company that offers a suite of products that help companies grow online revenue by driving more visitors to their websites, converting more visitors to purchasers, and increasing average order value per purchaser.

Bridgeline's software is available through a cloud-based Software as a Service ("SaaS") model. Additionally, Bridgeline's software is available via a perpetual licensing business model, in which the software can reside on premise at the customer's facility, or manage-hosted by Bridgeline. Bridgeline's product offerings include:

● HawkSearch: a site search, recommendation, and personalization software application, built for marketers to enhance, normalize, and enrich an online customer's content search and product discovery experience.

● Celebros Search: a commerce-oriented site search product that provides Natural Language Processing with artificial intelligence to present relevant search results based on long-tail keyword searches.

● Woorank: a Search Engine Optimization ("SEO") audit tool that generates an instant performance audit of the site's technical, on-page, and off-page SEO.

● Unbound: a Digital Experience Platform that includes Web Content Management, eCommerce, Digital Marketing, and Web Analytics.

● TruPresence: a web content management and eCommerce platform that supports the needs of multi-unit organizations and franchises.

● OrchestraCMS: the only content and digital experience platform built 100% native on Salesforce and helps customers create websites and intranets for their customers, partners, and employees.

Locations

Our corporate office is located in Woburn, Massachusetts. We maintain regional field offices serving the following geographical locations: Garden City, New York; Rosemont, Illinois; Atascadero, California; Ontario, Canada; and Brussels, Belgium.

We have four wholly-owned subsidiaries: Bridgeline Digital Pvt. Ltd., located in Bangalore, India; Bridgeline Digital Canada, Inc., located in Ontario, Canada; Hawk Search, Inc. located in Rosemont, Illinois and Bridgeline Digital Belgium BV, located in Brussels, Belgium.

Customer Information

We currently have over 2,000 active customers. For the three and nine months ended June 30, 2026 and 2025, no customer exceeded 10% of our revenue.

Results of Operations for the Three and Nine Months Ended June 30, 2026 compared to the Three and Nine Months Ended June 30, 2025

Total net revenue for each of the three months ended June 30, 2026 and 2025, was $3.9 million. We had net loss of $(0.5) million and $(0.8) million for the three months ended June 30, 2026 and 2025, respectively. Included in the net loss for the three months ended June 30, 2026 and 2025, was a gain of $1 thousand and $31 thousand as a result of the change in fair value of certain warrant liabilities, respectively. Basic and diluted loss per share attributable to common shareholders was $ (0.04) and $ (0.07) for the three months ended June 30, 2026 and 2025, respectively.

Total net revenue for the nine months ended June 30, 2026 and 2025, was $11.8 million and $11.5 million, respectively. We had net loss of $(1.0) million and $(2.2) million for the nine months ended June 30, 2026 and 2025, respectively. Included in the net loss for the nine months ended June 30, 2026 and 2025, was a gain of $96 thousand and a loss of $(58) thousand as a result of the change in fair value of certain warrant liabilities, respectively. Basic and diluted loss per share attributable to common shareholders was $ (0.08) and $ (0.23) for the nine months ended June 30, 2026 and 2025, respectively.

(in thousands)		Three Months Ended June 30,																								Nine Months Ended June 30,
Revenue		2026						%		2025						%		Change				% Change				2026						%		2025						%		Change				% Change
Subscription		$	3,095				79	%		$	3,122				81	%		$	(27	)			(1	)%		$	9,368				80	%		$	9,222				80	%		$	146				2	%
Services			827				21	%			724				19	%			103				14	%			2,384				20	%			2,290				20	%			94				4	%
Total net revenue			3,922								3,846								76				2	%			11,752								11,512								240				2	%
Cost of revenue
Subscription			952				31	%			934				30	%			18				2	%			2,912				31	%			2,694				29	%			218				8	%
Services			441				53	%			364				50	%			77				21	%			1,203				50	%			1,119				49	%			84				8	%
Total cost of revenue			1,393				36	%			1,298				34	%			95				7	%			4,115				35	%			3,813				33	%			302				8	%
Gross profit			2,529				64	%			2,548				66	%			(19	)			(1	)%			7,637				65	%			7,699				67	%			(62	)			(1	)%
Operating expenses
Sales and marketing			1,044				27	%			1,297				34	%			(253	)			(20	)%			3,145				27	%			3,355				29	%			(210	)			(6	)%
General and administrative			771				20	%			774				20	%			(3	)			(0	)%			2,244				19	%			2,343				20	%			(99	)			(4	)%
Research and development			936				24	%			961				25	%			(25	)			(3	)%			2,601				22	%			3,144				27	%			(543	)			(17	)%
Depreciation and amortization			180				5	%			195				5	%			(15	)			(8	)%			562				5	%			585				5	%			(23	)			(4	)%
Restructuring and acquisition related expenses			68				2	%			10				0	%			58				580	%			152				1	%			217				2	%			(65	)			(30	)%
Total operating expenses			2,999								3,237								(238	)			(7	)%			8,704								9,644								(940	)			(10	)%
Loss from operations			(470	)							(689	)							219				(32	)%			(1,067	)							(1,945	)							878				(45	)%
Interest expense and other, net			6								(126	)							132				(105	)%			-								(135	)							135				(100	)%
Change in fair value of warrant liabilities			1								31								(30	)			(97	)%			96								(58	)							154				(266	)%
Loss before income taxes			(463	)							(784	)							321				(41	)%			(971	)							(2,138	)							1,167				(55	)%
Provision for income taxes			5								5								-				0	%			15								15								-				0	%
Net loss		$	(468	)						$	(789	)						$	321				(41	)%		$	(986	)						$	(2,153	)						$	1,167				(54	)%
Non-GAAP Measure:
Adjusted EBITDA		$	(102	)						$	(330	)						$	228				(69	)%		$	(23	)						$	(762	)						$	739				(97	)%

Revenue

Subscription

Subscription revenue of $3.1 million for the three months ended June 30, 2026 remained consistent with the three months ended June 30, 2025.

Subscription revenue of $9.4 million for the nine months ended June 30, 2026 increased from $9.2 million for the nine months ended June 30, 2025.

Subscription revenue as a percentage of total revenue was 79% and 81% for the three months ended June 30, 2026 and 2025, respectively.

Subscription revenue as a percentage of total revenue of 80% for both the nine months ended June 30, 2026 and the nine months ended June 30, 2025.

Services

Services revenue of $0.8 million for the three months ended June 30, 2026 increased from $0.7 million for the three months ended June 30, 2025.

Services revenue of $2.4 million for the nine months ended June 30, 2026 increased from $2.3 million for the nine months ended June 30, 2025.

Services revenue as a percentage of total revenue was 21% and 19% for the three months ended June 30, 2026 and 2025, respectively.

Services revenue as a percentage of total revenue of 20% for both the nine months ended June 30, 2026 and June 30, 2025.

Overall

Revenue for Bridgeline's Core products was $2.4 million for the three months ended June 30, 2026 (representing 62% of total revenue), an increase from $2.2 million in the three months ended June 30, 2025 (representing 57% of total revenue). Bridgeline revenue for the three months ended June 30, 2026 increased compared to the three months ended June 30, 2025, with growth in Core products, led by HawkSearch, offset by lower revenue in certain legacy products.

Revenue for Bridgeline's Core products was $7.1 million for the nine months ended June 30, 2026 (representing 60% of total revenue), an increase from $6.3 million in the nine months ended June 30, 2025 (representing 55% of total revenue). Bridgeline revenue for the nine months ended June 30, 2026 increased compared to the nine months ended June 30, 2025, with growth in Core products, led by HawkSearch, offset by lower revenue in certain legacy products.

Core revenue for the 12 months ended June 30, 2026 grew by 13% compared to the 12 months ended June 30, 2025.

Cost of Revenue

Total cost of revenue of $1.4 million for the three months ended June 30, 2026 increased from $1.3 million for the three months ended June 30, 2025.

Total cost of revenue of $4.1 million for the nine months ended June 30, 2026 increased from $3.8 million for the nine months ended June 30, 2025.

Cost of Subscription Revenue

Cost of subscription revenue of $1.0 million for the three months ended June 30, 2026 increased from $0.9 million for the three months ended June 30, 2025.

The cost of subscription revenue as a percentage of subscription revenue was 31% and 30% for the three months ended June 30, 2026 and 2025, respectively.

Cost of subscription revenue of $2.9 million for the nine months ended June 30, 2026 increased from $2.7 million for the nine months ended June 30, 2025.

The cost of subscription revenue as a percentage of subscription revenue was 31% and 29% for the nine months ended June 30, 2026 and 2025, respectively.

The changes in cost of subscription revenue are primarily due to higher server costs.

Cost of Services Revenue

Cost of services revenue of $0.4 million for the three months ended June 30, 2026 increased from $0.4 million for the three months ended June 30, 2025.

The cost of services revenue as a percentage of total services revenue was 53% and 50% for the three months ended June 30, 2026 and 2025, respectively.

Cost of services revenue of $1.2 million for the nine months ended June 30, 2026 increased from $1.1 million for the nine months ended June 30, 2025.

The cost of services revenue as a percentage of total services revenue was 50% and 49% for the nine months ended June 30, 2026 and 2025, respectively.

The changes in cost of services revenue is primarily due to additional personnel costs.

Gross Profit

Gross profit of $2.5 million for the three months ended June 30, 2026 decreased from $2.5 million for the three months ended June 30, 2025.

The gross profit margin was 64% and 66% for the three months ended June 30, 2026 and 2025, respectively.

Gross profit of $7.6 million for the nine months ended June 30, 2026 decreased from $7.7 million for the nine months ended June 30, 2025.

The gross profit margin was 65% and 67% for the nine months ended June 30, 2026 and 2025, respectively.

Operating Expenses

Sales and Marketing Expenses

Sales and marketing expenses of $1.0 million for the three months ended June 30, 2026 decreased from $1.3 million for the three months ended June 30, 2025.

Sales and marketing expense as a percentage of total revenue was 27% and 34% for the three months ended June 30, 2026 and 2025, respectively.

Sales and marketing expenses of $3.2 million for the nine months ended June 30, 2026 decreased from $3.4 million with the nine months ended June 30, 2025.

Sales and marketing expense as a percentage of total revenue was 27% and 29% for the nine months ended June 30, 2026 and 2025.

The decrease with the prior comparable periods is primarily attributable to lower personnel costs and lower lead generation costs.

General and Administrative Expenses

General and administrative expenses of $0.8 million for the three months ended June 30, 2026 remained consistent with the three months ended June 30, 2025.

General and administrative expense as a percentage of total revenue was 20% for both the three months ended June 30, 2026 and 2025, respectively.

General and administrative expenses of $2.2 million for the nine months ended June 30, 2026 decreased from $2.3 for the nine months ended June 30, 2025.

General and administrative expense as a percentage of total revenue was 19% and 20% for the nine months ended June 30, 2026 and 2025, respectively.

The decrease with the prior comparable periods is primarily attributable to lower personnel costs.

Research and Development

Research and development expenses of $0.9 million for the three months ended June 30, 2026 remained consistent with the three months ended June 30, 2025.

Research and development expenses as a percentage of total revenue was 24% and 25% for the three months ended June 30, 2026 and 2025, respectively.

Research and development expenses of $2.6 million for the nine months ended June 30, 2026 decreased from $3.1 million for the nine months ended June 30, 2025.

Research and development expenses as a percentage of total revenue was 22% and 27% for the nine months ended June 30, 2026 and 2025, respectively.

The decrease from the prior comparable periods is primarily attributable to lower personnel costs.

Depreciation and Amortization

Depreciation and amortization expenses of $0.2 million for the three months ended June 30, 2026 remained consistent with the three months ended June 30, 2025.

Depreciation and amortization as a percentage of total revenue was 5% for each of the three months ended June 30, 2026 and 2025.

Depreciation and amortization expenses of $0.6 million for the nine months ended June 30, 2026 remained consistent with the nine months ended June 30, 2025.

Depreciation and amortization as a percentage of total revenue was 5% for each of the nine months ended June 30, 2026 and 2025.

Restructuring and Acquisition Related Expenses

Restructuring and acquisition related expenses were $68 thousand for the three months ended June 30, 2026 compared to $10 thousand for the three months ended June 30, 2025.

Restructuring and acquisition related expenses were $0.2 million for the nine months ended June 30, 2026 decreased from $0.2 million for the nine months ended June 30, 2025.

Interest expense and other, net

Interest expense and other, net, was $6 thousand for the three months ended June 30, 2026 and was $(126) thousand for the three months ended June 30, 2025.

Interest expense and other, net, was $- thousand for the nine months ended June 30, 2026 and was $(135) thousand for the nine months ended June 30, 2025.

Change in fair value of warrant liabilities

We recognized a gain on the change in fair value of warrant liabilities of $1 thousand during the three months ended June 30, 2026 and recognized a gain related to the change in fair value of warrant liabilities of $31 thousand for the three months ended June 30, 2025.

We recognized a gain on the change in fair value of warrant liabilities of $96 thousand during the nine months ended June 30, 2026 and recognized a loss related to the change in fair value of warrant liabilities of $(58) thousand for the nine months ended June 30, 2025.

Provision for Income Taxes

The provision for income taxes was $5 thousand for each of the three months ended June 30, 2026 and June 30, 2025. The provision for income taxes was $15 thousand for each of the nine months ended June 30, 2026 and June 30, 2025. The provision for income taxes consists of estimated liability for federal and state income taxes owed by us. Net operating loss ("NOL") carryforwards are estimated to be sufficient to offset any potential taxable income for all periods presented. A valuation allowance is established if it is more likely than not that all or a portion of the deferred tax asset will not be realized. We maintain a valuation allowance against its net deferred tax assets.

Adjusted EBITDA

We also measure our performance based on a non-GAAP ("Generally Accepted Accounting Principles") measurement of earnings before interest, taxes, depreciation, amortization, stock-based compensation expense, impairment of goodwill and intangible assets, non-cash warrant related expenses, other income and expenses, change in fair value of derivative instruments, change in fair value of contingent consideration, and restructuring and acquisition related charges ("Adjusted EBITDA").

We believe this non-GAAP financial measure of Adjusted EBITDA is useful to management and investors in evaluating our operating performance for the periods presented and provides a tool for evaluating our ongoing operations.

Adjusted EBITDA, however, is not a measure of operating performance under accounting principles generally accepted in the United States of America ("U.S. GAAP") and should not be considered as an alternative or substitute for U.S. GAAP profitability measures such as (i) income from operations and net income, or (ii) cash flows from operating, investing and financing activities, both as determined in accordance with U.S. GAAP. Adjusted EBITDA as an operating performance measure has material limitations because it excludes the financial statement impact of net interest expense, income taxes, depreciation, amortization of intangibles, stock-based compensation, goodwill impairment, changes in fair value of warrant liabilities, loss on disposal of assets, other amortization, changes in fair value of contingent consideration and restructuring charges, acquisition related expenses, and therefore does not represent an accurate measure of profitability. As a result, Adjusted EBITDA should be evaluated in conjunction with net income (loss) for a complete analysis of our profitability, as net income (loss) includes the financial statement impact of these items and is the most directly comparable U.S. GAAP operating performance measure to Adjusted EBITDA. Our definition of Adjusted EBITDA may also differ from and therefore may not be comparable with similarly titled measures used by other companies, thereby limiting its usefulness as a comparative measure. Because of the limitations that Adjusted EBITDA has as an analytical tool, investors should not consider it in isolation, or as a substitute for analysis of our operating results as reported under U.S. GAAP.

The following table reconciles net loss (which is the most directly comparable U.S. GAAP operating performance measure) to Adjusted EBITDA (in thousands):

		Three Months Ended June 30,								Nine Months Ended June 30,
		2026				2025				2026				2025
Net loss		$	(468	)		$	(789	)		$	(986	)		$	(2,153	)
Provision for income tax			5				5				15				15
Interest expense and other, net			(6	)			3				-				12
Change in fair value of warrants			(1	)			(31	)			(96	)			58
Amortization of intangible assets			168				183				534				549
Depreciation and other amortization			12				15				29				52
Restructuring and acquisition related charges			68				10				152				217
Stock-based compensation			120				274				329				488
Adjusted EBITDA		$	(102	)		$	(330	)		$	(23	)		$	(762	)

Liquidity and Capital Resources

Cash Flows

Operating Activities

Cash provided by operating activities was $76 thousand for the nine months ended June 30, 2026, compared to cash used in operating activities of $(0.8) million for the nine months ended June 30, 2025. The change in cash used in operating activities, compared to the prior period, was primarily due to changes in non-cash items, including depreciation, and changes in fair value of warrant liabilities, and changes in accounts receivable, prepaids and other current assets, and accounts payable and accrued liabilities and deferred revenue.

Investing Activities

There was $(87) thousand and $(12) thousand cash used in investing activities for the nine months ended June 30, 2026 and 2025, respectively.

Financing Activities

Cash used in financing activities was $(0.1) million for the nine months ended June 30, 2026, compared to cash provided by financing activities of $1.5 million for the nine months ended June 30, 2025. The change is primarily related to proceeds from the issuance of common stock and the redemption of Preferred Series C shares in the nine months ended June 30, 2025.

Capital Resources and Liquidity Outlook

We have historically incurred operating losses and used cash on hand and from financing activities to fund operations as well as develop new products. The Company is continuing to maintain tight control over discretionary spending for the 2026 fiscal year. The Company believes that future revenues and cash flows will supplement its working capital and it has an appropriate cost structure to support future revenue growth.

We may offer and sell, from time to time, in one or more offerings, up to $50 million of its debt or equity securities, or any combination thereof. Such securities offerings may be made pursuant to the Company's currently effective registration statement on Form S-3 (File No. 333-285176), which was initially filed with the Securities and Exchange Commission on February 24, 2025 and declared effective on February 27, 2025 (the "Shelf Registration Statement"). A complete description of the types of securities that the Company may sell is described in the Preliminary Prospectus contained in the Shelf Registration Statement. As of the date of the filing of this Quarterly Report, there are no active offerings for the sale or obligations to purchase any of the Company's securities pursuant to the Shelf Registration Statement, exclusive of the ATM Sales Agreement as detailed below. As of the date of this Quarterly Report on Form 10-Q, there are no active offerings under the ATM Sales Agreement. There can be no assurances that the Company will offer any securities for sale or that if the Company does offer any securities that it will be successful in selling any portion of the securities offered on a timely basis if at all, or on terms acceptable to us. Further, our ability to offer or sell such securities may be limited by the rules of the NASDAQ Capital Market. As of June 30, 2026 approximately $47.7 million remains available for issuance.

ATM Sales Agreement

On July 14, 2026, the Company entered into a Common Stock Sales Agreement (the "Sales Agreement") with WestPark Capital, Inc., as sales agent, pursuant to which the Company may offer and sell, from time to time through WestPark, shares of the Company's common stock subject to the terms and conditions of the Sales Agreement. Under the Sales Agreement, WestPark may sell the Placement Shares in sales deemed to be an "at-the-market offering" as defined in Rule 415(a)(4) promulgated under the Securities Act of 1933, as amended. The Company may instruct WestPark not to sell the Placement Shares if the sales cannot be effected at or above the price designated by the Company from time to time.

The Company is not obligated to make any sales of the Placement Shares under the Sales Agreement. No assurance can be given that the Company will sell Placement Shares under the Sales Agreement, or if such sales occur, no assurance can be given as to the price or number of shares that will be sold, or the dates on which any such sales will take place. Either party may terminate the Sales Agreement in its sole discretion at any time upon written notice to the other party.

The Company will pay WestPark a fixed commission rate of 3.0% of the aggregate gross proceeds from the sale of the Placement Shares pursuant to the Sales Agreement and has agreed to provide WestPark with customary indemnification and contribution rights. The Company also has agreed to reimburse WestPark for its reasonable out-of-pocket expenses (including but not limited to the reasonable and documented fees and expenses of its legal counsel) in an amount not to exceed $50,000 and quarterly disbursements of counsel to WestPark for ongoing diligence procedures in an amount not to exceed $3,500 per calendar quarter.

As of the date of this Quarterly Report on Form 10-Q, no Placement Shares have been sold.

Off-Balance Sheet Arrangements

At this time, we do not have any off-balance sheet arrangements, financings or other relationships with unconsolidated entities or other persons.

Contractual Obligations

We lease all of our office locations. The gross obligations for operating leases are $1.0 million, with obligations extending through fiscal 2031. Debt payments on our various debt obligations total $0.2 million, of which $0.1 million is expected to be paid in the next twelve months.

Critical Accounting Policies

These critical accounting policies and estimates by our management should be read in conjunction with Note 2, Summary of Significant Accounting Policies to the Consolidated Financial Statements that were prepared in accordance with U.S. GAAP.

The preparation of financial statements in accordance with U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses in the reporting period. We regularly make estimates and assumptions that affect the reported amounts of assets and liabilities. The most significant estimates included in our financial statements are the valuation of accounts receivable and long-term assets, including intangibles, goodwill and deferred tax assets, stock-based compensation, amounts of revenue to be recognized on service contracts in progress, unbilled receivables, and deferred revenue. We base our estimates and assumptions on current facts, historical experience and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by us may differ materially and adversely from our estimates. To the extent there are material differences between our estimates and the actual results, our future results of operations will be affected.

We consider the following accounting policies to be both those most important to the portrayal of our financial condition and those that require the most subjective judgment:

	●	Revenue recognition;
	●	Accounts receivable;
	●	Accounting for goodwill and other intangible assets;
	●	Accounting for business combinations;
	●	Accounting for common stock purchase warrants; and
	●	Accounting for stock-based compensation.

Revenue Recognition

We derive our revenue from two sources: (i) Subscription, which are comprised of software subscription fees ("SaaS"), hosting and related services, maintenance for post-customer support ("PCS") on perpetual licenses, and perpetual software licenses, and (ii) Services, which are professional services to implement our products such as web development, digital strategy, information architecture and usability engineering search. Customers who license the software on a subscription basis, which can be described as "Software as a Service" or "SaaS", do not take possession of the software.

Revenue is recognized when control of these services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those services. If the consideration promised in a contract includes a variable amount, for example, overage fees, contingent fees or service level penalties, we include an estimate of the amount we expect to receive for the total transaction price if it is probable that a significant reversal of cumulative revenue recognized will not occur. Our subscription service arrangements are non-cancelable and do not contain refund-type provisions. Revenue is reported net of applicable sales and use tax.

We recognize revenue from contracts with customers using a five-step model, which is described below:

	1.	Identify the customer contract;
	2.	Identify performance obligations that are distinct;
	3.	Determine the transaction price;
	4.	Allocate the transaction price to the distinct performance obligations; and
	5.	Recognize revenue as the performance obligations are satisfied.

Accounts Receivable

The allowance for credit losses is determined based upon a variety of judgments and factors. Factors considered in determining the allowance include historical collection, write-off experience, and management's assessment of collectability from customers, including current conditions, reasonable forecasts, and expectations of future collectability and collection efforts. Management continuously assesses the collectability of receivables and adjusts estimates based on actual experience and future expectations based on economic indicators. Management also monitors the aging analysis of receivables to determine if there are changes in the collections of accounts receivable. Receivable balances are written-off against the allowance for credit losses when such balances are deemed to be uncollectible.

Accounting for Goodwill and Intangible Assets

Goodwill is tested for impairment annually during the fourth quarter of every fiscal year and more frequently if events and circumstances indicate that the asset might be impaired. The purpose of an impairment test is to identify any potential impairment by comparing the carrying value of a reporting unit including goodwill to its fair value. An impairment charge is recognized for the amount by which the carrying amount exceeds the reporting unit's fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit.

Factors that could lead to a future impairment include material uncertainties such as operational, economic and competitive factors specific to the key assumptions underlying the fair value estimate we use in our impairment testing that have a reasonable possibility of changing. This could include a significant reduction in projected revenues, a deterioration of projected financial performance, future acquisitions and/or mergers, and a decline in our market value as a result of a significant decline in our stock price.

Accounting for Business Combinations

We allocate the amount we pay for each acquisition to the assets acquired and liabilities assumed based on their fair values at the date of acquisition, including identifiable intangible assets which arise from a contractual or legal right or are separable from goodwill. We base the fair value of identifiable intangible assets acquired in a business combination on detailed valuations that use information and assumptions provided by management, which consider management's best estimates of inputs and assumptions that a market participant would use. We allocate any excess purchase price that exceeds the fair value of the net tangible and identifiable intangible assets acquired to goodwill. The use of alternative valuation assumptions, including estimated growth rates, cash flows and discount rates and estimated useful lives could result in different purchase price allocations and amortization expense in current and future periods. Transaction costs associated with these acquisitions are expensed as incurred through general and administrative expense on the consolidated statements of operations. In those circumstances where an acquisition involves a contingent consideration arrangement, we recognize a liability equal to the fair value of the contingent payments expected to be made as of the acquisition date. We re-measure this liability each reporting period and recognize changes in the fair value through income (loss) before income taxes within the consolidated statements of operations.

Accounting for Common Stock Purchase Warrants

We evaluate common stock warrants as they are issued to determine whether they should be classified as an equity instrument or a liability. Those warrants that are classified as a liability are carried at fair value at each reporting period, with changes in their fair value recognized in change in fair value of warrant liabilities in the consolidated statements of operations. The fair value of our warrant liabilities are valued utilizing Level 3 inputs. Warrant liabilities are valued using a Monte Carlo option-pricing model, which takes into consideration the volatilities of comparable public companies, due to the relatively low trading volume of our common stock. The Monte Carlo option-pricing model uses certain assumptions, including expected life and annual volatility.

Accounting for Stock-Based Compensation

At June 30, 2026, we maintained two stock-based compensation plans, one of which has expired but still contains vested stock options. The two plans are more fully described in Note 8 of these condensed consolidated financial statements.

We account for stock-based compensation awards in accordance with ASC 718, Compensation-Stock Compensation. Share-based payments (to the extent they are compensatory) are recognized in our consolidated statements of operations based on their fair values.

We recognize stock-based compensation expense for share-based payments issued that are expected to vest on a straight-line basis over the service period of the award, which is generally three years. In determining whether an award is expected to vest, we use an estimated, forward-looking forfeiture rate based upon our historical forfeiture rate and reduce the expense over the recognition period. Estimated forfeiture rates are updated for actual forfeitures quarterly. We also consider, each quarter, whether there have been any significant changes in facts and circumstances that would affect our forfeiture rate. Although we estimate forfeitures based on historical experience, actual forfeitures in the future may differ. In addition, to the extent our actual forfeitures are different than our estimates, we recognize a true-up for the difference in the period that the awards vest, and such true-ups could materially affect our operating results.

We estimate the fair value of stock options using the Black-Scholes-Merton option valuation model. The fair value of an award is affected by our stock price on the date of grant as well as other assumptions, including the estimated volatility of our stock price over the term of the awards and the estimated period of time that we expect employees to hold their stock options. The risk-free interest rate assumption we use is based upon United States Treasury interest rates appropriate for the expected life of the awards. We use the historical volatility of our publicly traded options in order to estimate future stock price trends. In order to determine the estimated period of time that we expect employees to hold their stock options, we use historical trends of employee turnovers. Our expected dividend rate is zero since we do not currently pay cash dividends on our common stock and do not anticipate doing so in the foreseeable future. The aforementioned inputs entered into the option valuation model we use to fair value our stock awards are subjective estimates and changes to these estimates will cause the fair value of our stock awards and related stock-based compensation expense we recognize to vary.

We recognize deferred tax assets for stock-based awards that result in deductions on our income tax returns, based on the amount of stock-based compensation recognized and the statutory tax rate in the jurisdiction in which we will receive a tax deduction.