Quarterly Report for Quarter Ending September 30, 2025 (Form 10-Q)

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

This section and other parts of this Form 10-Q contain forward-looking statements that involve risks and uncertainties. Forward-looking statements can be identified by words such as "anticipates," "expects," "believes," "plans," "predicts," and similar terms. Forward-looking statements are not guarantees of future performance and our Company's actual results may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such differences include, but are not limited to, those discussed in Part II, Item 1A, "Risk Factors," which are incorporated herein by reference. The following discussion should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2024 (the "2024 Form 10-K") filed with the SEC and the Condensed Consolidated Financial Statements and notes thereto included in the 2025 Form 10-Qs and elsewhere in this Form 10-Q. We assume no obligation to revise or update any forward-looking statements for any reason, except as required by law.

OVERVIEW

Crexendo, Inc. is an award-winning software technology company that is a premier provider of cloud communication platform software and unified communications as a service (UCaaS) offering, including voice, video, contact center, and managed IT services tailored to businesses of all sizes. Our cloud communications software solutions currently support over six million end users globally, through an extensive network of over 235 cloud communication platform software subscribers and our direct retail offering. Our products and services can be categorized in the following offerings:

Cloud Telecommunications Services - Our cloud telecommunications services transmit calls using IP or cloud technology, which converts voice signals into digital data packets for transmission over the Internet or cloud. Each of our calling plans provides a number of basic features typically offered by traditional telephone service providers, plus a wide range of enhanced features that we believe offer an attractive value proposition to our customers. This platform enables a user, via a single "identity" or telephone number, to access and utilize services and features regardless of how the user is connected to the Internet or cloud, whether it's from a desktop device or an application on a mobile device or computer.

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 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. 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.

Software Solutions - Our software solutions segment derives revenues from three primary sources: software licenses, software maintenance support and professional services. Software and services may be sold separately or in bundled packages. Generally, contracts with customers contain multiple performance obligations, consisting of software and services. For bundled packages, the Company accounts for individual products and services separately if they are distinct - i.e. if a product or service is separately identifiable from other items in the bundled package and if a customer can benefit from it on its own or with other resources that are readily available to the customer. The consideration is allocated between separate products and services in a bundle based on their relative stand-alone selling prices. The stand-alone selling prices are determined based on the prices at which the Company separately sells the software licenses and professional services. For items that are not sold separately (e.g. additional features) the Company estimates stand-alone selling prices using the adjusted market assessment approach. 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.

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. The Company does not recognize software revenue related to the renewal of subscription software licenses earlier than the beginning of the subscription period.

We generate subscription and maintenance support revenue from customer support and other supportive services. The Company offers warranties on its products. The warranty period for our licensed software is generally 90 days. Certain of the Company's warranties are considered to be assurance-type in nature and do not cover anything beyond ensuring that the product is functioning as intended. Based on the guidance in ASC 606, assurance-type warranties do not represent separate performance obligations. The Company also sells separately-priced maintenance service contracts, which qualify as service-type warranties and represent separate performance obligations. The Company does not typically allow and has no history of accepting material product returns. Customer support includes software updates on a when-and-if-available basis, telephone support, integrated web-based support and bug fixes or patches. Subscription and maintenance support revenue is recognized ratably over the term of the customer support agreement, which is typically one to three years.

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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. 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. 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. These services are rendered through a variety of devices and communication solutions for businesses using user interfaces such as a Crexendo branded and third party desktop phones and/or mobile and desktop applications. Some examples of mobile devices are Android cell phones, iPhones, iPads or Android tablets. These services enable our customers to seamlessly communicate with others through phone calls that originate/terminate on our network or PSTN networks. Our cloud telecommunications services are powered by our proprietary implementation of standards based Web and VoIP cloud technologies. Our services use our highly scalable complex infrastructure that we build and manage based on industry standard best practices to achieve greater efficiencies, better quality of service (QoS) and customer satisfaction. Our infrastructure comprises of compute, storage, network technologies, 3^rd party products and vendor relationships. We also develop end user portals for account management, license management, billing and customer support and adopt other cloud technologies through our partnerships.

Crexendo's cloud telecommunication service offers a wide variety of essential and advanced features for businesses of all sizes. 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. These features are also available on CrexMo, VIP Mobile, and Snap Mobile which are intelligent mobile application for iPhones and Android smartphones, as well as iPads and Android tablets.
	·	Traditional PBX Features such as Busy Lamp Fields, System Hold. 16-48 Port density Analog Device Gateways.
	·	Expanded Desktop Device Selection such as Entry Level Phone, Executive Desktop, DECT Phone for roaming users.
	·	Advanced Faxing solution such as Cloud Fax (cFax) allowing customers to send and receive Faxes from their Email Clients, Mobile Phones and Desktops without having to use a Fax Machine simply by attaching a file.
	·	Web based online portal to administer, manage and provision the system.
	·	Asynchronous communication tools like SMS/MMS, chat and document sharing to keep in pace with emerging communication trends.
	·	Video collaboration tools for video conferencing and meeting collaboration.

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. 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.

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Software Solutions - Our software solutions offering provides a comprehensive suite of unified communications (UC), video conferencing, collaboration & contact center solutions. 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 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. 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. As the service provider increases their customer base, they only have to ensure they have sufficient concurrent call licenses to support users across the network.
	·	SNAPaccel - a Software-as-a-Service ("SaaS") based software license referred to as subscription arrangements.
	·	Subscription Maintenance and Support - The Company also sells separately-priced maintenance service contracts, which qualify as service-type warranties and represent separate performance obligations and customer support. Customer support includes software updates on a when-and-if-available basis, telephone support, integrated web-based support and bug fixes or patches.
	·	Professional Services and Other - The Company's professional services include consulting, technical support, resident engineer services, design services and installation services.

KEY BUSINESS METRICS

In addition to United States generally accepted accounting principles ("U.S. GAAP") and financial measures such as total revenues, gross margin, and cash flows from operations, we review a number of key business metrics to evaluate growth trends, measure our performance, and make strategic decisions. We discuss revenues and operating expenses under "Results of Operations", and cash flow from operations under "Liquidity and Capital Resources." Other key business metrics are discussed below.

Annualized Exit Monthly Recurring Subscriptions

We believe that our Annualized Exit Monthly Recurring Subscriptions ("AERR") is a leading indicator of our anticipated subscriptions revenues. We believe that trends in revenue are important to understanding the overall health of our business, and we use these trends to formulate financial projections and make strategic business decisions. Our AERR equals our Monthly Recurring Subscriptions multiplied by 12. Our Monthly Recurring Subscriptions equals the monthly value of all customer recurring charges at the end of a given month. For example, our Monthly Recurring Subscriptions at September 30, 2025 were $4,675. As such, our AERR at September 30, 2025 was $56,100 compared to $49,039 at September 30, 2024.

Net Monthly Subscription Dollar Retention Rate

We believe that our Net Monthly Subscription Dollar Retention Rate provides insight into our ability to retain and grow subscriptions revenue, as well as our customers' potential long-term value to us. We believe that our ability to retain our customers and expand their use of our solutions over time is a leading indicator of the stability of our revenue base and we use these trends to formulate financial projections and make strategic business decisions. We define our Net Monthly Subscription Dollar Retention Rate as (i) one plus (ii) the quotient of Dollar Net Change divided by Average Monthly Recurring Subscriptions.

We define Dollar Net Change as the quotient of (i) the difference of our Monthly Recurring Subscriptions at the end of a period minus our Monthly Recurring Subscriptions at the beginning of a period minus our Monthly Recurring Subscriptions at the end of the period from new customers we added during the period, all divided by (ii) the number of months in the period. We define our Average Monthly Recurring Subscriptions as the average of the Monthly Recurring Subscriptions at the beginning and end of the measurement period.

For example, if our Monthly Recurring Subscriptions were $122 at the end of a quarterly period and $100 at the beginning of the period, and $24 at the end of the period from new customers we added during the period, then the Dollar Net Change would be equal to ($0.67), or the amount equal to the difference of $122 minus $100 minus $24, all divided by three months. Our Average Monthly Recurring Subscriptions would equal $111, or the sum of $100 plus $122, divided by two. Our Net Monthly Subscription Dollar Retention Rate would then equal 99.4%, or approximately 99%, or one plus the quotient of the Dollar Net Change divided by the Average Monthly Recurring Subscriptions.

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Adjusted EBITDA

In addition, we use Adjusted EBITDA to manage our business, evaluate our performance and make planning decisions. We consider this metric to be a useful measure of our operating performance, because it contains adjustments for unusual events or factors that do not directly affect what management considers the core operating performance, and are used by our management for that purpose. We also believe this measure enables us to better evaluate our performance by facilitating a meaningful comparison of our core operating results in a given period to those in prior and future periods. Investors often use similar measures to evaluate the operating performance with competitors. Adjusted EBITDA represents net income before interest and other income, income taxes, depreciation, amortization of intangible assets, and share-based compensation and related taxes.

Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:

	·	Adjusted EBITDA does not consider any expenses for assets being depreciated and amortized that are necessary to our business;
	·	Adjusted EBITDA does not consider the impact of interest and other income/(expense), income taxes, share-based compensation and related taxes, and amortization of intangible assets; and
	·	Other companies, including companies in our industry, may calculate diluted EBITDA differently, which reduces its usefulness as a comparative measure.

Because of these limitations, Adjusted EBITDA should be considered alongside other financial performance measures, including net income/(loss) and our other GAAP results.

Our key business metrics for the periods ended September 30, 2025 and September 30, 2024, were as follows (in thousands, except for percentages):

		As of September 30, 2025												As of September 30, 2024
		Cloud Telecommunications Services				Software Solutions				Consolidated				Cloud Telecommunications Services				Software Solutions				Consolidated
Annualized exit recurring revenue		$	35,397			$	20,703			$	56,100			$	31,873			$	17,166			$	49,039
Net dollar subscription retention rate			99	%			102	%			100	%			99	%			102	%			100	%
Adjusted EBITDA			936				2,007				2,943				845				916				1,761

Results of Operations

The following discussion of financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and notes thereto and other financial information included elsewhere in this Form 10-Q.

Results of Consolidated Operations (in thousands, except for per share amounts):

		Three Months Ended September 30,								Nine Months Ended September 30,
		2025				2024				2025				2024
Service revenue		$	8,607			$	7,953			$	25,163			$	23,865
Software solutions revenue			7,521				5,860				21,364				16,331
Product revenue			1,369				1,814				3,579				4,402
Total revenue		$	17,497			$	15,627			$	50,106			$	44,598
Income/(loss) before income tax			1,493				194				3,988				1,270
Income tax (provision)/benefit			(43	)			(46	)			(135	)			(100	)
Net income/(loss)			1,450				148				3,853				1,170
Basic earnings per share		$	0.05			$	0.01			$	0.13			$	0.04
Diluted earnings per share		$	0.05			$	0.00			$	0.12			$	0.04

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Three months ended September 30, 2025 compared to three months ended September 30, 2024

Total Revenue

Total revenue consists of service revenue, software solutions revenue, and product revenue. The following table reflects our total revenue for the three months ended September 30, 2025, compared to the three months ended September 30, 2024:

		Three Months Ended September 30,
		2025				2024				Dollar Change				Percent Change
Total revenue		$	17,497			$	15,627			$	1,870				12	%

The increase in total revenue is due to an increase in software solutions revenue of $1,661, an increase in service revenue of $616, offset by a decrease in product revenue of $407.

Income/(Loss) Before Income Tax

The following table reflects our income/(loss) before income tax for the three months ended September 30, 2025, compared to the three months ended September 30, 2024:

		Three Months Ended September 30,
		2025				2024				Dollar Change				Percent Change
Income/(loss) before income tax		$	1,493			$	194			$	1,299				670	%

The increase in income/(loss) before income tax is primarily related to an increase in revenue of $1,870 and an increase in other income/(expense) of $129, offset by an increase in operating expenses of $700. The increase in revenue is related to organic growth from new and existing customers. The increase in operating expenses is primarily related to increase in contract labor and outsourced engineering services of $298, an increase in commission expenses of $250, and an increase in third-party telecommunication charges of $163, offset by a decrease in other operating expenses of $11. The increase in other income/(expense) is primarily related to an increase in interest income of $130, offset by a decrease in other income/(expense) of $1.

Income Tax Benefit/(Provision)

The following table reflects our income tax benefit/(provision) for the three months ended September 30, 2025, compared to the three months ended September 30, 2024:

		Three Months Ended September 30,
		2025				2024				Dollar Change				Percent Change
Income tax benefit/(provision)		$	(43	)		$	(46	)		$	3				7	%

The decrease in income tax provision is due to the quarterly impact of the tax provision adjustment.

Nine months ended September 30, 2025 compared to nine months ended September 30, 2024

Total Revenue

Total revenue consists of service revenue, software solutions revenue, and product revenue. The following table reflects our service revenue for the nine months ended September 30, 2025, compared to the nine months ended September 30, 2024:

		Nine Months Ended September 30,
		2025				2024				Dollar Change				Percent Change
Total revenue		$	50,106			$	44,598			$	5,508				12	%

The increase in total revenue is due to an increase in software solutions revenue of $5,033 and an increase in service revenue of $1,260, offset by a decrease in product revenue of $785.

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Income/(Loss) Before Income Tax

The following table reflects our income/(loss) before income tax for the nine months ended September 30, 2025, compared to the nine months ended September 30, 2024:

		Nine Months Ended September 30,
		2025				2024				Dollar Change				Percent Change
Income/(loss) before income tax		$	3,988			$	1,270			$	2,718				214	%

The increase in income/(loss) before income tax is primarily related to an increase in revenue of $5,508 and an increase in other income/(expense) of $358, offset by an increase in operating expenses of $3,148. The increase in revenue is related to organic growth from new and existing customers. The increase in operating expenses is primarily related to an increase salaries, benefits, bonuses, share-based compensation, and headcount of $1,077, an increase in commission expense of $893, an increase in contract labor and outsourced engineering services of $652, an increase in third-party telecommunication charges of $417, and an increase in other expenses of $109. The increase in other income/(expense) is primarily related to an increase in interest income of $282, an increase in other income of $63, and a decrease in interest expense of $13.

Income Tax Benefit/(Provision)

The following table reflects our income tax benefit/(provision) for the nine months ended September 30, 2025, compared to the nine months ended September 30, 2024:

		Nine Months Ended September 30,
		2025				2024				Dollar Change				Percent Change
Income tax benefit/(provision)		$	(135	)		$	(100	)		$	(35	)			-35	%

The increase in income tax provision is due to minimum state tax increases as a result of increased revenue.

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. These measures include the same adjustments that management takes into account when it reviews and assesses operating performance on a period-to-period basis. We consider Non-GAAP net income to be an important indicator of overall business performance because it allows us to evaluate results without the effects of share-based compensation and related taxes, acquisition related expenses, changes in fair value of contingent consideration, amortization of intangibles, and goodwill and long-lived asset impairment. We define EBITDA as U.S. 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, benefit/(provision) for income tax, 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 define Adjusted EBITDA as EBITDA adjusted for acquisition related expenses, changes in fair value of contingent consideration and share-based compensation and related taxes. 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.

In our November 4, 2025 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. GAAP, and are not measures of operating income, operating performance or liquidity presented in analytical tools, and when assessing our operating performance, Non-GAAP net income, EBITDA, and Adjusted EBITDA should not be considered in isolation, or as a substitute for net income/(loss) or other consolidated income statement data prepared in accordance with U.S. GAAP. Some of these limitations include, but are not limited to:

	·	EBITDA and Adjusted EBITDA do not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments;
	·	they do not reflect changes in, or cash requirements for, our working capital needs;
	·	they do not reflect the interest expense, or the cash requirements necessary to service interest or principal payments, on our debt that we may incur;
	·	they do not reflect income taxes or the cash requirements for any tax payments;
	·	although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will be replaced sometime in the future, and EBITDA and Adjusted EBITDA do not reflect any cash requirements for such replacements;
	·	while share-based compensation is a component of operating expense, the impact on our financial statements compared to other companies can vary significantly due to such factors as the assumed life of the options and the assumed volatility of our common stock; and
	·	other companies may calculate EBITDA and Adjusted EBITDA differently than we do, limiting their usefulness as comparative measures.

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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.

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. GAAP Net Income/(Loss) to Non-GAAP Net Income

(Unaudited, in thousands, except for per share and share data)

		Three Months Ended September 30,								Nine Months Ended September 30,
		2025				2024				2025				2024
U.S. GAAP net income/(loss)		$	1,450			$	148			$	3,853			$	1,170
Share-based compensation and related taxes (1)			799				797				2,422				2,323
Amortization of intangible assets			785				755				2,292				2,273
Non-GAAP net income		$	3,034			$	1,700			$	8,567			$	5,766
Non-GAAP earnings per common share:
Basic		$	0.10			$	0.06			$	0.29			$	0.22
Diluted		$	0.10			$	0.06			$	0.27			$	0.19
Weighted-average common shares outstanding:
Basic			30,397,144				26,848,644				29,292,516				26,610,130
Diluted			31,818,738				29,857,261				31,418,659				29,827,531

Reconciliation of U.S. GAAP Net Income/(Loss) to EBITDA to Adjusted EBITDA

(Unaudited, in thousands)

		Three Months Ended September 30,								Nine Months Ended September 30,
		2025				2024				2025				2024
U.S. GAAP net income/(loss)		$	1,450			$	148			$	3,853			$	1,170
Depreciation and amortization			839				829				2,466				2,505
Interest expense			3				7				18				31
Other, net			(191	)			(66	)			(448	)			(103	)
Income tax provision			43				46				135				100
EBITDA			2,144				964				6,024				3,703
Share-based compensation and related taxes (1)			799				797				2,422				2,323
Adjusted EBITDA		$	2,943			$	1,761			$	8,446			$	6,026

___________________

(1)

For the three months ended September 30, 2025 and 2024, employer payroll tax expense related to share-based compensation was $33 and $16, respectively. For the nine months ended September 30, 2025 and 2024, employer payroll tax expense related to share-based compensation was $168 and $30, respectively.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

In preparing our financial statements, we make estimates, assumptions and judgments that can have a significant impact on our revenue, operating income or loss and net income or loss, as well as on the value of certain assets and liabilities on our balance sheet. Please see Note 1 of Part I, Item 1 of this quarterly report on Form 10-Q for a summary of significant accounting policies. In addition, the estimates, assumptions and judgments involved in our accounting policies described in critical accounting policies and estimates are disclosed in our Annual Report on Form 10-K for the year ended December 31, 2024.

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Segment Operating Results

The Company has two operating segments, which consist of Cloud Telecommunications Services and Software Solutions. The information below is organized in accordance with our two reportable segments. Segment operating income is equal to segment net revenue less segment cost of service revenue, cost of software solution revenue, cost of product revenue, sales and marketing, research and development, and general and administrative expenses.

Operating Results of our Cloud Telecommunications Services Segment (in thousands):

		Three Months Ended September 30,								Nine Months Ended September 30,
Cloud Telecommunications Services		2025				2024				2025				2024
Service revenue		$	8,607			$	7,953			$	25,163			$	23,865
Product revenue			1,369				1,814				3,579				4,402
Total revenue		$	9,976			$	9,767			$	28,742			$	28,267
Operating expenses:
Cost of service revenue		$	3,664			$	3,336			$	10,707			$	9,691
Cost of product revenue			888				1,081				2,174				2,507
Selling and marketing			3,215				2,976				9,148				8,580
General and administrative			1,928				2,278				5,824				6,668
Research and development			122				134				369				661
Total operating expenses			9,817				9,805				28,222				28,107
Operating income/(loss)			159				(38	)			520				160
Other income/(expense), net			194				64				398				104
Income/(loss) before income tax		$	353			$	26			$	918			$	264

Three months ended September 30, 2025 compared to three months ended September 30, 2024

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. The following table reflects our service revenue for the three months ended September 30, 2025, compared to the three months ended September 30, 2024:

		Three Months Ended September 30,
		2025				2024				Dollar Change				Percent Change
Service revenue		$	8,607			$	7,953			$	654				8	%

The increase in service revenue is due to an increase in telecommunications services fees of $560, an increase in fees, commissions, and other, recognized over time of $50, an increase in sales-type lease interest of $40, and an increase in one-time fees, commissions and other of $4.

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 following table reflects our product revenue for the three months ended September 30, 2025, compared to the three months ended September 30, 2024:

		Three Months Ended September 30,
		2025				2024				Dollar Change				Percent Change
Product revenue		$	1,369			$	1,814			$	(445	)			-25	%

Product revenue fluctuates from one period to the next based on timing of installations. Our typical customer installation is complete within 30-60 days. However, larger enterprise customers can take multiple months, depending on size and the number of locations. Product revenue is recognized when products have been installed and services commence. Additionally, product revenue can fluctuate due to the allocation of discounts or sales promotions across the performance obligations.

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Remaining Performance Obligations

Remaining Performance Obligations (RPOs) represents the total contract value of all contracts signed, less revenue recognized from those contracts as of September 30, 2025 and 2024. RPO's increased 11%, or $6,030 to $58,993 as of September 30, 2025 as compared to $52,963 as of September 30, 2024. Below is a table which displays the Cloud Telecommunications segment revenue remaining performance obligations as of July 1, 2025 and 2024, and September 30, 2025 and 2024, which we expect to recognize as revenue within the next thirty-six to sixty months (in thousands):

Cloud Telecommunications RPO's as of July 1, 2025		$	56,392
Cloud Telecommunications RPO's as of September 30, 2025		$	58,993
Cloud Telecommunications RPO's as of July 1, 2024		$	51,684
Cloud Telecommunications RPO's as of September 30, 2024		$	52,963

Cost of Service Revenue

Cost of service revenue consists primarily of fees we pay to third-party telecommunications carriers, broadband Internet providers, software providers, costs related to installations, contract labor costs, customer support salaries, benefits, bonuses, and share-based compensation. The following table reflects our cost of service revenue for the three months ended September 30, 2025, compared to the three months ended September 30, 2024:

		Three Months Ended September 30,
		2025				2024				Dollar Change				Percent Change
Cost of service revenue		$	3,664			$	3,336			$	328				10	%

The increase in cost of service revenue was primarily related to an increase in contract labor costs to assist with the migration of our customers to our new VIP platform of $258, an increase in third-party telecommunication charges of $163, an increase in data center hosting costs of $28, and an increase in other cost of service revenue of $45, offset by a decrease in salaries, benefits, bonuses, and share-based compensation of $166.

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 product revenue for the three months ended September 30, 2025, compared to the three months ended September 30, 2024:

		Three Months Ended September 30,
		2025				2024				Dollar Change				Percent Change
Cost of product revenue		$	888			$	1,081			$	(193	)			-18	%

The decrease in cost of product revenue is directly related to the decrease in product revenue for the three months ended September 30, 2025.

Selling and Marketing

Selling and marketing expenses consist primarily of direct and channel sales representative salaries, benefits, bonuses, and share-based compensation, partner channel commissions, amortization of costs to acquire contracts, travel expenses, lead generation services, trade shows, internal and third-party marketing costs, amortization of customer relationship intangible assets, the production of marketing materials, and sales support software. The following table reflects our selling and marketing expenses for the three months ended September 30, 2025, compared to the three months ended September 30, 2024:

		Three Months Ended September 30,
		2025				2024				Dollar Change				Percent Change
Selling and marketing		$	3,215			$	2,976			$	239				8	%

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The increase in selling and marketing expense is primarily related to an increase in commission expense of $144 directly related to the increase in revenue, an increase in salaries, benefits, bonuses, share-based compensation, and headcount of $83, and an increase in other sales and marketing expense of $12.

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, rent expense, consulting fees, depreciation, amortization of intangible assets, and other administrative corporate expenses. The following table reflects our general and administrative expenses for the three months ended September 30, 2025, compared to the three months ended September 30, 2024:

		Three Months Ended September 30,
		2025				2024				Dollar Change				Percent Change
General and administrative		$	1,928			$	2,278			$	(350	)			-15	%

The decrease in general and administrative expenses is primarily related to a decrease in administrative salaries, benefits, bonuses, share-based compensation, and headcount of $163, a decrease in telecommunication annual taxes and fees of $76, a decrease in utility expense of $53, and a decrease in other general and administrative expenses of $58.

Research and Development

Research and development expenses primarily consist of salaries, benefits, bonuses, and share-based compensation and outsourced engineering services related to the development of new cloud telecommunications features and products. The following table reflects our research and development expenses for the three months ended September 30, 2025, compared to the three months ended September 30, 2024:

		Three Months Ended September 30,
		2025				2024				Dollar Change				Percent Change
Research and development		$	122			$	134			$	(12	)			-9	%

The decrease in research and development expenses is primarily related to the allocation of engineering resources to the Software Solutions segment of $23 as we finalize the migration of our classic customers to our VIP platform, offset by an increase in other research and development expenses of $11.

Other Income/(Expense)

Other income/(expense) primarily relates to interest income, interest expense, net foreign exchange gains or losses, gain on the sale of property and equipment, and credit card cash back rewards. The following table reflects our other income/(expense) for the three months ended September 30, 2025, compared to the three months ended September 30, 2024:

		Three Months Ended September 30,
		2025				2024				Dollar Change				Percent Change
Other income/(expense)		$	194			$	64			$	130				203	%

The change in other income/(expense) is primarily related to an increase in interest income of $130 and a decrease in interest expense of $4, offset by a decrease in other income of $4.

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Nine months ended September 30, 2025 compared to nine months ended September 30, 2024

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. The following table reflects our service revenue for the nine months ended September 30, 2025, compared to the nine months ended September 30, 2024:

		Nine Months Ended September 30,
		2025				2024				Dollar Change				Percent Change
Service revenue		$	25,163			$	23,865			$	1,298				5	%

The increase in service revenue is due to an increase in telecommunications services fees of $1,198, an increase in fees, commissions, and other, recognized over time of $280, and an increase in sales-type lease interest of $130, offset by a decrease in one-time fees, commissions and other of $310.

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 following table reflects our product revenue for the nine months ended September 30, 2025, compared to the nine months ended September 30, 2024:

		Nine Months Ended September 30,
		2025				2024				Dollar Change				Percent Change
Product revenue		$	3,579			$	4,402			$	(823	)			-19	%

Product revenue fluctuates from one period to the next based on timing of installations. Our typical customer installation is complete within 30-60 days. However, larger enterprise customers can take multiple months, depending on size and the number of locations. Product revenue is recognized when products have been installed and services commence. Additionally, product revenue can fluctuate due to the allocation of discounts or sales promotions across the performance obligations.

Remaining Performance Obligations

Remaining Performance Obligations (RPO's) represents the total contract value of all contracts signed, less revenue recognized from those contracts as of September 30, 2025 and 2024. RPO's increased 11%, or $6,030 to $58,993 as of September 30, 2025 as compared to $52,963 as of September 30, 2024. Below is a table which displays the Cloud Telecommunications segment revenue remaining performance obligations as of January 1, 2025 and 2024, and September 30, 2025 and 2024, which we expect to recognize as revenue within the next thirty-six to sixty months (in thousands):

Cloud Telecommunications RPO's as of January 1, 2025		$	55,369
Cloud Telecommunications RPO's as of September 30, 2025		$	58,993
Cloud Telecommunications RPO's as of January 1, 2024		$	44,810
Cloud Telecommunications RPO's as of September 30, 2024		$	52,963

Cost of Service Revenue

Cost of service revenue consists primarily of fees we pay to third-party telecommunications carriers, broadband Internet providers, software providers, costs related to installations, contract labor costs, customer support salaries, benefits, bonuses, and share-based compensation. The following table reflects our cost of service revenue for the nine months ended September 30, 2025, compared to the nine months ended September 30, 2024:

		Nine Months Ended September 30,
		2025				2024				Dollar Change				Percent Change
Cost of service revenue		$	10,707			$	9,691			$	1,016				10	%

The increase in cost of service revenue was primarily related to an increase in third-party telecommunication charges of $417, an increase in contract labor costs to assist with the migration of our customers to our new VIP platform of $412, an increase in data center hosting costs of $111, an increase in software costs of $73, and an increase in other cost of service revenue of $3.

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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 product revenue for the nine months ended September 30, 2025, compared to the nine months ended September 30, 2024:

		Nine Months Ended September 30,
		2025				2024				Dollar Change				Percent Change
Cost of product revenue		$	2,174			$	2,507			$	(333	)			-13	%

The decrease in cost of product revenue is primarily related to the decrease in product revenue for the nine months ended September 30, 2025.

Selling and Marketing

Selling and marketing expenses consist primarily of direct and channel sales representative salaries, benefits, bonuses, and share-based compensation, partner channel commissions, amortization of costs to acquire contracts, travel expenses, lead generation services, trade shows, internal and third-party marketing costs, amortization of customer relationship intangible assets, the production of marketing materials, and sales support software. The following table reflects our selling and marketing expenses for the nine months ended September 30, 2025, compared to the nine months ended September 30, 2024:

		Nine Months Ended September 30,
		2025				2024				Dollar Change				Percent Change
Selling and marketing		$	9,148			$	8,580			$	568				7	%

The increase in selling and marketing expense is primarily related to an increase in commission expense of $484 directly related to the increase in revenue, an increase in salaries, benefits, bonuses, share-based compensation, and headcount of $178, and an increase in other sales and marketing expense of $31, offset by a decrease in bad debt related to a decrease in our credit loss reserve of $125.

General and Administrative

General and administrative expenses consist of salaries, benefits, bonuses and share-based compensation for executives, administrative personnel, legal, rent, equipment, accounting and other professional services, investor relations, depreciation, amortization of intangible assets, and other administrative corporate expenses. The following table reflects our general and administrative expenses for the nine months ended September 30, 2025, compared to the nine months ended September 30, 2024:

		Nine Months Ended September 30,
		2025				2024				Dollar Change				Percent Change
General and administrative		$	5,824			$	6,668			$	(844	)			-13	%

The decrease in general and administrative expenses is primarily related to a decrease in administrative salaries, benefits, bonuses, share-based compensation, and headcount of $563, a decrease in telecommunication annual taxes and fees of $147, a decrease in legal fees of $56 related to the filing of our Form S-3 in 2024, a decrease in consulting fees of $28, and a decrease in other general and administrative expenses of $50.

Research and Development

Research and development expenses primarily consist of salaries, benefits, bonuses, and share-based compensation, and outsourced engineering services related to the development of new cloud telecommunications features and products. The following table reflects our research and development expenses for the nine months ended September 30, 2025, compared to the nine months ended September 30, 2024:

		Nine Months Ended September 30,
		2025				2024				Dollar Change				Percent Change
Research and development		$	369			$	661			$	(292	)			-44	%

The decrease in research and development expenses is primarily related to the allocation of engineering resources to our Software Solutions segment of $302 as we finalize the migration of our customers to our VIP platform, offset by an increase in other research and development expenses of $10.

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Other Income/(Expense)

Other income/(expense) primarily relates to interest income, interest expense, net foreign exchange gains or losses, gain on the sale of property and equipment, and credit card cash back rewards. The following table reflects our other income/(expense) for the nine months ended September 30, 2025, compared to the nine months ended September 30, 2024:

		Nine Months Ended September 30,
		2025				2024				Dollar Change				Percent Change
Other income/(expense), net		$	398			$	104			$	294				283	%

The change in other income/(expense) is primarily related to an increase in interest income of $281 and a decrease in interest expense of $13.

Operating Results of Software Solutions segment (in thousands):

		Three Months Ended September 30,								Nine Months Ended September 30,
Software Solutions		2025				2024				2025				2024
Software solutions revenue		$	7,521			$	5,860			$	21,364			$	16,331
Operating expenses:
Cost of software solutions revenue			1,924				1,686				5,227				4,523
Selling and marketing			1,307				1,245				4,034				3,626
General and administrative			1,852				1,417				5,060				3,755
Research and development			1,292				1,339				4,005				3,389
Total operating expenses			6,375				5,687				18,326				15,293
Operating income/(loss)			1,146				173				3,038				1,038
Other income/(expense), net			(6	)			(5	)			32				(32	)
Income/(loss) before income tax		$	1,140			$	168			$	3,070			$	1,006

Three months ended September 30, 2025 compared to three months ended September 30, 2024

Software Solutions Revenue

Software solutions revenue consists primarily of software license fees, subscription maintenance and support, professional services, and annual user group meeting fees. Software licenses are billed by the number of concurrent sessions a customer has purchased or subscribes to. Subscription maintenance and support is ongoing and provides for software updates and improvements, support for add-on modules, bug fixes, and other general maintenance items. Professional services and other revenues consist of professional services such as the installation of software and integration of other modules, training and implementation as well as custom mobile branding. The following table reflects our service revenue for the three months ended September 30, 2025, compared to the three months ended September 30, 2024:

		Three Months Ended September 30,
		2025				2024				Dollar Change				Percent Change
Software solutions revenue		$	7,521			$	5,860			$	1,661				28	%

The increase in software solutions revenue is primarily related to an increase in recurring software license and maintenance and support subscriptions of $1,040, an increase in perpetual software license revenue of $605, and an increase in professional services and other revenue of $16.

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Remaining Performance Obligations

Remaining Performance Obligations (RPOs) represents the total contract value of all contracts signed, less revenue recognized from those contracts as of September 30, 2025 and 2024. RPO's increased 18%, or $4,480 to $28,888 as of September 30, 2025 as compared to $24,408 as of September 30, 2024. Below is a table which displays the software solutions segment revenue remaining performance obligations as of July 1, 2025 and 2024, and September 30, 2025 and 2024, which we expect to recognize as revenue within the next thirty-six to sixty months (in thousands):

Software solutions RPO's as of July 1, 2025		$	27,077
Software solutions RPO's as of September 30, 2025		$	28,888
Software solutions RPO's as of July 1, 2024		$	19,478
Software solutions RPO's as of September 30, 2024		$	24,408

Cost of Software Solutions Revenue

Cost of software solutions revenue consists primarily of salaries, benefits, bonuses, and share-based compensation, amortization expense for developed technologies intangible assets, cost of data center hosting, third-party software, annual user group meeting costs, and outsourced services required to install and support software solutions. The following table reflects our cost of service revenue for the three months ended September 30, 2025, compared to the three months ended September 30, 2024:

		Three Months Ended September 30,
		2025				2024				Dollar Change				Percent Change
Cost of software solutions revenue		$	1,924			$	1,686			$	238				14	%

The increase in cost of software solutions revenue is primarily related to an increase in salaries, benefits, bonuses, share-based compensation, and headcount of $175 and an increase in third-party hosting service costs of $63.

Selling and Marketing

Selling and marketing expenses consist primarily of sales and marketing salaries, benefits, bonuses, commissions, share-based compensation, travel expenses, lead generation services, trade shows, third-party marketing services, the production of marketing materials, annual user group meeting costs, and sales support software. The following table reflects our selling and marketing expenses for the three months ended September 30, 2025, compared to the three months ended September 30, 2024:

		Three Months Ended September 30,
		2025				2024				Dollar Change				Percent Change
Selling and marketing		$	1,307			$	1,245			$	62				5	%

The increase in selling and marketing expense is primarily related to an increase in commission expense of $106 directly related to the increase in revenue, offset by a decrease in salaries, benefits, bonuses, share-based compensation, and headcount of $42 primarily from an allocation of resources to the Cloud Telecommunications services segment, and a decrease in other selling and marketing costs of $2.

General and Administrative

General and administrative expenses consist of salaries and benefits for executives, administrative personnel, amortization of intangible assets, legal, rent, equipment, accounting and other professional services, and other administrative corporate expenses. The following table reflects our general and administrative expenses for the three months ended September 30, 2025, compared to the three months ended September 30, 2024:

		2025				2024				Dollar Change				Percent Change
General and administrative		$	1,852			$	1,417			$	435				31	%

The increase in general and administrative expenses is primarily related to an increase in legal expenses of $204, an increase in salaries, benefits, bonuses, share-based compensation, and headcount of $128, an increase in the amortization of the capitalized software development costs intangible asset of $33, an increase in professional service fees of $17, and an increase in other general and administrative expenses of $53.

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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. The following table reflects our research and development expenses for the three months ended September 30, 2025, compared to the three months ended September 30, 2024:

		Three Months Ended September 30,
		2025				2024				Dollar Change				Percent Change
Research and development		$	1,292			$	1,339			$	(47	)			-4	%

The decrease in research and development expenses is primarily related to a decrease in salaries, benefits, bonuses, share-based compensation, and headcount of $90, offset by an increase in outsourced engineering services expenses of $40 and an increase in other research and development expenses of $3.

Other Income/(Expense)

Other income/(expense) primarily relates to net foreign exchange gains or losses and other income and expenses. The following table reflects our other expense for the three months ended September 30, 2025, compared to the three months ended September 30, 2024:

		2025				2024				Dollar Change				Percent Change
Other income/(expense), net		$	(6	)		$	(5	)		$	(1	)			-20	%

The change in other income/(expense) is primarily related to a decrease in foreign exchange gains of $8 offset by an increase in other income of $7.

Nine months ended September 30, 2025 compared to nine months ended September 30, 2024

Software Solutions Revenue

Software solutions revenue consists primarily of software license fees, subscription maintenance and support, professional services, and annual user group meeting fees. Software licenses are billed by the number of concurrent sessions a customer has purchased or subscribes to. Subscription maintenance and support is ongoing and provides for software updates and improvements, support for add-on modules, bug fixes, and other general maintenance items. Professional services and other revenues consist of professional services such as the installation of software and integration of other modules, training and implementation as well as custom mobile branding. The following table reflects our service revenue for the nine months ended September 30, 2025, compared to the nine months ended September 30, 2024:

		Nine Months Ended September 30,
		2025				2024				Dollar Change				Percent Change
Software solutions revenue		$	21,364			$	16,331			$	5,033				31	%

The increase in software solutions revenue is primarily related to an increase in recurring software license and maintenance and support subscriptions of $2,611 and an increase in perpetual software license revenue of $2,485, offset by a decrease in professional services and other revenue of $63.

Remaining Performance Obligations

Remaining Performance Obligations (RPOs) represents the total contract value of all contracts signed, less revenue recognized from those contracts as of September 30, 2025 and 2024. RPO's increased 18%, or $4,480 to $28,888 as of September 30, 2025 as compared to $24,408 as of September 30, 2024. Below is a table which displays the software solutions segment revenue remaining performance obligations as of January 1, 2025 and 2024, and September 30, 2025 and 2024, which we expect to recognize as revenue within the next thirty-six to sixty months (in thousands):

Software solutions RPO's as of January 1, 2025		$	30,262
Software solutions RPO's as of September 30, 2025		$	28,888
Software solutions RPO's as of January 1, 2024		$	19,122
Software solutions RPO's as of September 30, 2024		$	24,408

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Cost of Software Solutions Revenue

Cost of software solutions revenue consists primarily of salaries, benefits, bonuses, and share-based compensation, amortization expense for developed technologies intangible assets, cost of data center hosting, third-party software, annual user group meeting costs, and outsourced services required to install and support software solutions. The following table reflects our cost of service revenue for the nine months ended September 30, 2025, compared to the nine months ended September 30, 2024:

		Nine Months Ended September 30,
		2025				2024				Dollar Change				Percent Change
Cost of software solutions revenue		$	5,227			$	4,523			$	704				16	%

The increase in cost of software solutions revenue is primarily related to an increase in salaries, benefits, bonuses, share-based compensation, and headcount of $461, an increase in software costs of $189, and an increase in outsourced services of $97, offset by a decrease in third-party hosting service costs of $41 and a decrease in other costs of software solutions revenue of $2.

Selling and Marketing

Selling and marketing expenses consist primarily of sales and marketing salaries, benefits, bonuses, commissions, share-based compensation, travel expenses, lead generation services, trade shows, third-party marketing services, the production of marketing materials, annual user group meeting costs, and sales support software. The following table reflects our selling and marketing expenses for the nine months ended September 30, 2025, compared to the nine months ended September 30, 2024:

		Nine Months Ended September 30,
		2025				2024				Dollar Change				Percent Change
Selling and marketing		$	4,034			$	3,626			$	408				11	%

The increase in selling and marketing expense is primarily related to an increase in commission expense of $409 directly related to the increase in revenue and an increase in marketing materials and trade show costs of $103, offset by a decrease in salaries, benefits, bonuses, share-based compensation, and headcount of $58 primarily from an allocation of resources to the Cloud Telecommunications services segment, a decrease in sales support software of $27, and a decrease in other selling and marketing costs of $19.

General and Administrative

General and administrative expenses consist of salaries and benefits for executives, administrative personnel, amortization of intangible assets, legal, rent, equipment, accounting and other professional services, and other administrative corporate expenses. The following table reflects our general and administrative expenses for the nine months ended September 30, 2025, compared to the nine months ended September 30, 2024:

		Nine Months Ended September 30,
		2025				2024				Dollar Change				Percent Change
General and administrative		$	5,060			$	3,755			$	1,305				35	%

The increase in general and administrative expenses is primarily related to an increase in salaries, benefits, bonuses, share-based compensation, and headcount of $842 due to allocation of resources from the Cloud Telecommunications services segment, an increase in legal expenses of $217, an increase amortization of the capitalized software development costs intangible asset of $84, an increase in professional service costs of $45, an increase in consulting fees of $42, an increase in accounting software costs of $27 associated with service contract fees for our new accounting system, and an increase in other general and administrative expenses of $48.

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. The following table reflects our research and development expenses for the nine months ended September 30, 2025, compared to the nine months ended September 30, 2024:

		Nine Months Ended September 30,
		2025				2024				Dollar Change				Percent Change
Research and development		$	4,005			$	3,389			$	616				18	%

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The increase in research and development expenses is primarily related to an increase in salaries, benefits, bonuses, share-based compensation, and headcount of $519 due to the allocation of engineering resources from the Cloud Telecommunications segment as we finalize the migration of our classic customers to the VIP platform and an increase in outsourced engineering services expenses of $101, offset by a decrease in other research and development expenses of $4.

Other Income/(Expense)

Other income/(expense) primarily relates to net foreign exchange gains or losses and other income and expenses. The following table reflects our other expense for the nine months ended September 30, 2025, compared to the nine months ended September 30, 2024:

		Nine Months Ended September 30,
		2025				2024				Dollar Change				Percent Change
Other income/(expense)		$	32			$	(32	)		$	64				200	%

The change in other income/(expense) is primarily related to an increase in foreign exchange gains of $68, offset by a decrease in other income of $4.

Liquidity and Capital Resources

Liquidity is a measure of our ability to access sufficient cash flows to meet the short-term and long-term cash requirements of our business operations. We finance our operations primarily through services, software solutions, and product sales to our customers. As of September 30, 2025 and December 31, 2024, we had cash and cash equivalents of $28,573 and $18,193, respectively. Changes in cash and cash equivalents are dependent upon changes in, among other things, working capital items such as contract liabilities, contract costs, accounts payable, accounts receivable, prepaid expenses, and various accrued expenses, as well as purchases of property and equipment, asset acquisitions, business combinations, and changes in our capital and financial structure due to debt repayments and issuances, stock option exercises, sales of equity investments and similar events. We believe that our operations along with existing liquidity sources will satisfy our cash requirements for at least the next 12 months.

Operating Activities

Cash provided by or used in operating activities is driven by our net income/(loss), adjustments to reconcile to net cash provided by or used in operating activities, the timing of customer collections, as well as the amount and timing of disbursements to our vendors, the amount of cash we invest in personnel, marketing, and infrastructure costs to support the anticipated growth of our business. The following table reflects our net cash provided by/(used in) operating activities for the nine months ended September 30, 2025, compared to the nine months ended September 30, 2024:

		Nine Months Ended September 30,
		2025				2024				Dollar Change				Percent Change
Net cash provided by/(used in) operating activities		$	6,950			$	4,107			$	2,843				69	%

The net cash provided by operating activities for the nine months ended September 30, 2025 was primarily driven by our net income of $3,853, non-cash expenses for depreciation and amortization of $2,466, share-based compensation of $2,254, an increase in contract liabilities of $1,026, and an increase in accounts payable and accrued expenses of $799, offset by an increase in equipment financing receivables of $932, an increase in prepaid expenses of $596, an increase in contract costs of $591, an increase in trade receivables of $394, and an increase in inventory of $247.

The net cash provided by operating activities for the nine months ended September 30, 2024 was primarily driven by non-cash expenses for depreciation and amortization of $2,505, share-based compensation of $2,293, our net income for the nine months ended September 30, 2024 of $1,170, an increase in accounts payable and accrued expenses of $695, and an increase in contract liabilities of $335, offset by an increase in contract costs of $867, an increase in prepaid expense of $819, an increase in equipment financing receivables of $585, an increase in trade receivables of $277, and an increase in inventories of $169.

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Investing Activities

Cash provided by or used in investing activities is driven by the purchase of property and equipment, business combinations, and asset acquisitions. The following table reflects our net cash provided by/(used in) investing activities for the nine months ended September 30, 2025, compared to the nine months ended September 30, 2024:

		Nine Months Ended September 30,
		2025				2024				Dollar Change				Percent Change
Net cash provided by/(used in) investing activities		$	(18	)		$	-			$	(18	)			100	%

The net cash used in investing activities for the nine months ended September 30, 2025 was for the purchase of property and equipment.

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. The following table reflects our net cash provided by/(used in) financing activities for the nine months ended September 30, 2025, compared to the nine months ended September 30, 2024:

		2025				2024				Dollar Change				Percent Change
Net cash provided by/(used in) financing activities		$	3,421			$	1,011			$	2,410				238	%

Net cash provided by financing activities for the nine months ended September 30, 2025 primarily driven by cash received from the exercise of stock options of $4,137, offset by repayments made on notes payable of $356, the payments of employee tax withholdings from the net settlement of stock options and RSUs of $340, and repayments made on finance leases of $20.

Net cash used in financing activities for the nine months ended September 30, 2024 primarily driven by cash received from the exercise of stock options of $1,573, offset by repayments made on notes payable of $340, the payments of employee tax withholdings from the net settlement of stock options and RSUs of $166, and repayments made on finance leases of $56.

Contractual Obligations and Commitments

Except as set forth in Notes 10, 14, and 15 in the accompanying notes to the Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, there were no significant changes in our commitments under contractual obligations, as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2024.

Off Balance Sheet Arrangements

As of September 30, 2025, we are not involved in any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.

Related Party Transactions

On November 1, 2022, the Company completed the acquisition of Allegiant Networks, LLC, a Kansas limited liability company (the "Allegiant Networks") to acquire from Seller one hundred percent (100%) of the issued and outstanding shares of Allegiant Networks in exchange for (i) a cash payment at closing in the amount of $2.0 million, (ii) a three-year promissory note by the Company in favor of Seller in the amount of $1.1 million, and (iii) 2,461,538 shares of the Company's common stock, par value $0.001 per share. In connection with this transaction, the seller Bryan Dancer, became a greater than five percent shareholder of the Company. Therefore, the three-year promissory note in the amount of $1.1 million, is considered a related party transaction. The loan agreement has a term of three (3) years with quarterly payments of Ninety-Eight Thousand Three Hundred Eighty-one Dollars ($98,381), including interest at 4.00%, beginning on April 1, 2024. As of September 30, 2025 and December 31, 2024, the outstanding balance of the related party note payable was $194 and $478, respectively. During the three months ended September 30, 2025 and 2024, the Company paid principal of $96 and $92, respectively, and interest of $4 and $6, respectively. During the nine months ended September 30, 2025 and 2024, the Company paid principal of $284 and $272, respectively, and interest of $10 and $22, respectively.

On February 1, 2025, the Company entered into a consulting agreement with Steven G. Mihaylo, Chairman Emeritus of the board of directors and a greater than five percent shareholder. In exchange for his consulting services, Mr. Mihaylo is to receive monthly consideration of $14 or $168 annually. During the three months ended September 30, 2025 and 2024, the Company paid $42 and $42, respectively, and $126 and $112 for the nine months ended September 30, 2025 and 2024, respectively.

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Impact of Recent Accounting Pronouncements

The information set forth under Note 1 to the condensed consolidated financial statements under the caption "Recent Accounting Pronouncements" is incorporated herein by reference.