CREXENDO, INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Form 10-Q)

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, 2021 (the "2020 Form 10-K") filed with
the SEC and the Condensed Consolidated Financial Statements and notes thereto
included in the 2022 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 premier provider of Unified Communications as
a Service (UCaaS), Call Center as a Service (CCaaS), communication platform
software solutions, and collaboration services designed to provide
enterprise-class cloud communication solutions to any size business through our
business partners, agents, and direct channels. Our solutions currently support
over 2.5 million end users globally and 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 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.



We generate recurring revenue from our cloud telecommunications and broadband
Internet services. 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 and equipment financing 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 year.




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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 solutions currently support over 2.5 million end users globally and 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 ng 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 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, 3rd 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.



Crexondo’s Cloud telecommunications services provide businesses of all sizes with a wide range of basic and advanced capabilities. The many features included in the service offering include:


    ·   Business Productivity Features such as dial-by extension and name,
        transfer, conference, call recording, Unlimited calling to anywhere in the

United States and CanadaInternational calls, toll free (incoming and outgoing)

· Personal productivity features such as caller ID, call waiting, last

Callback, call recording, music/message on hold, voicemail, unity

Messaging, desk round use

· Group productivity characteristics such as call parkcall 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 switching from WiFi to 3G and 4G, LTE and other data

Serve.These features are also available on CrexMo, a smart

Mobile apps for iPhone and Android smartphones and iPads

and android tablet

· Traditional PBX functions such as busy lamp field, system hold. 16-48 ports

Density Simulation Equipment

· Expanded desktop options, e.g. entry-level phones, executives

Desktop, DECT phone for roaming users

· Advanced fax solutions such as Cloud Fax (cFax) allows customers

from their email clients, mobile phones and

No need for a fax machine on the desktop, just attach files

· Web-based online portal for managing, administering and configuring the system.

· Asynchronous communication tools such as SMS/MMS, chat and document sharing

        to keep in pace with emerging communication trends.



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.



Software Solutions – Our software solutions provide a complete suite of unified communications (UC), video conferencing, collaboration and contact center solutions to more than 200 service providers serving more than 2.5 million users worldwide. Our platform enables its service provider partners to tailor packages with unprecedented flexibility, profitability and ease of use.



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The software solutions we provide are as follows:

· SNAPsolution® – a comprehensive IP-based platform offering a wide range of

UC service suite including managed private branch (PBX),

Auto attendant, call center, conferencing and mobility.the platform

Includes extensive feature set, custom offers

Unprecedented flexibility to make solutions competitive

major players in the market. SNAPsolution includes a full suite of voices

With Internet Protocol (VoIP)/UC functionality, a low-cost universal

licenses, rather than pricing each feature individually.company

Authorize its platform based on concurrent sessions, not per seat/per

feature. This allows service providers to oversubscribe their network,

Lower the cost per seat as the number increases.as a service

Suppliers increase their customer base, they just need to make sure they have

Sufficient concurrent calling licenses to support the entire network of users.

· SNAPaccel – Software as a Service (“SaaS”) based software license

referred to as a subscription arrangement.

· Subscription maintenance and support – the company also sells

A separately priced maintenance service contract that qualifies as

warranties for the type of service and represent separate performance obligations and

Customer Support.Customer support includes software updates

Ready to use, phone support, web-based integration

Support and bug fixes or patches.

· Professional services and others – the company’s professional services

Includes consulting, technical support, resident engineer services, design

        services and installation services.




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

end month September 30,

                            2022                     2021                2022                  2021
Service revenue       $          4,473         $          4,325     $        13,427       $        12,791
Software solutions
revenue                          3,875                    3,784              10,741                 4,796
Product revenue                    760                      701               1,944                 1,509
Total revenue         $          9,108         $          8,810     $        26,112       $        19,096
Income/(loss)
before income taxes               (728 )                     12              (3,127 )              (2,090 )
Income tax
benefit/(provision)                 32                     (137 )               315                   247
Net loss                          (696 )                   (125 )            (2,812 )              (1,843 )
Basic earnings per
share                 $          (0.03 )       $          (0.01 )   $         (0.13 )     $         (0.09 )
Diluted earnings
per share             $          (0.03 )       $          (0.01 )   $         (0.13 )     $         (0.09 )



end of three months September 30, 2022 compared to the end of three months September 30, 2021



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, 2022, compared to the three months ended September
30, 2021:



                                 Three Months Ended September 30,
                   2022             2021         Dollar Change      Percent Change
Total revenue   $    9,108       $    8,810     $           298                   3 %





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The increase in total revenue was due to an increase in service revenue
$147,000software solutions revenue increased $91,000Product revenue increased $59,000.

Income/(loss) before income tax

The following table reflects our income/(loss) before income taxes for the three
months ended September 30, 2022, compared to the three months ended September
30, 2021:



                                            Three Months Ended September 30,
                             2022             2021         Dollar Change       Percent Change
Income/(loss) before
income taxes              $     (728 )     $       12     $          (740 )              -6167 %




The increased loss before income tax is primarily due to an increase in
operating expenses of $895,000 and an increase in other expense of $143,000. The
increase in operating expenses is primarily related to increases in salaries and
benefits and stock compensation expense, offset by an increase in revenue of
$298,000.


Income tax benefits/(provided)

The table below reflects our income tax benefits for the three months ended
September 30, 2022compared to the ending three months September 30, 2021:


                                           Three Months Ended September 30,
                           2022             2021           Dollar Change       Percent Change
Income tax
benefit/(provision)     $       32       $     (137 )     $           169                 -123 %




We had an income tax benefit of $32,000 for the three months ended September 30,
2022 compared to an income tax provision of $(137,000) for the three months
ended September 30, 2021. We had income/(loss) before income tax for the three
months ended September 30, 2022 and 2021 of $(728,000) and $12,000,
respectively.



nine months end September 30, 2022 compared to the nine months ended September 30, 2021



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, 2022, compared to the nine months ended September 30,
2021:



                                Nine Months Ended September 30,
                   2022          2021        Dollar Change       Percent Change
Total revenue   $   26,112     $ 19,096     $         7,016                   37 %




The increase in total revenue is due to an increase in service revenue of
$636,000, an increase in software solutions revenue of $5,945,000, and an
increase in product revenue of $435,000. The significant increase in software
solutions revenue is primarily related to nine months of revenue for 2022
compared to only four months of revenue for the nine months end September 31,
2021.



Loss Before Income Taxes



The following table reflects our loss before income taxes for the nine months
ended September 30, 2022, compared to the nine months ended September 30, 2021:



                                           Nine Months Ended September 30,
                             2022          2021        Dollar Change       Percent Change
Loss before income taxes   $  (3,127 )   $ (2,090 )   $        (1,037 )    
            50 %







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The increase in the loss before income tax is primarily due to an increase in
revenue of $7,016,000, offset by an increase in operating expenses of $7,792,000
and an increase in other expense of $261,000. The increase in operating expenses
is primarily related to increases in salaries and benefits, stock compensation
expense, and nine months of software solutions operating expenses compared to
only four month in the prior period.



Income Tax Benefit


The table below reflects our income tax benefits for the nine months ended
September 30, 2022compared to the ending nine months September 30, 2021:


                                      Nine Months Ended September 30,
                       2022           2021          Dollar Change       Percent Change
Income tax benefit   $    315       $    247       $            68                   28 %




We had an income tax benefit of $315,000 for the nine months ended September 30,
2022 compared to an income tax benefit of $247,000 for the nine months ended
September 30, 2021. We had a loss before income tax for the nine months ended
September 30, 2022 and 2021 of $(3,127,000) and $(2,090,000), respectively.

Use of Non-GAAP Financial Measures



To evaluate our business, we consider and use non-generally accepted accounting
principles ("Non-GAAP") net income/(loss) 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/(loss)
to be an important indicator of overall business performance because it allows
us to evaluate results without the effects of share-based compensation,
acquisition related expenses, changes in fair value of contingent consideration
and amortization of intangibles. We define EBITDA as U.S. GAAP net income/(loss)
before interest income, interest expense, other income and expense, provision
for income taxes, and depreciation and amortization. We believe EBITDA provides
a useful metric to investors to compare us with other companies within our
industry and across industries. We define Adjusted EBITDA as EBITDA adjusted for
acquisition related expenses, changes in fair value of contingent consideration
and share-based compensation. We use Adjusted EBITDA as a supplemental measure
to review and assess operating performance. We also believe use of Adjusted
EBITDA facilitates investors' use of operating performance comparisons from
period to period, as well as across companies.



In our November 10, 2022 earnings press release, as furnished on Form 8-K, we
included Non-GAAP net income/(loss), EBITDA and Adjusted EBITDA. The terms
Non-GAAP net income/(loss), 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/(loss), 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 expenditure or contractual commitments;

they do not reflect changes in our jobs or cash needs

financial needs;

· They do not reflect interest expense or cash requirements

Necessary to pay interest or principal, our debts

may occur;

· They do not reflect income tax or cash requirements for any tax

Payment;

· While depreciation and amortization are non-cash expenses, asset

What is depreciated and amortized will be replaced at some point in the future,

EBITDA and Adjusted EBITDA do not reflect any cash requirements

such replacement;

· While share-based compensation is an integral part of operating expenses,

The impact on our financial statements may be different compared to other companies

Mainly due to the assumed life of the option and

the hypothetical volatility of our common stock; and

· Other companies may calculate EBITDA and Adjusted EBITDA differently

        we do, limiting their usefulness as comparative measures.




We compensate for these limitations by relying primarily on our U.S. GAAP
results and using Non-GAAP net income/(loss), EBITDA, and Adjusted EBITDA only
as supplemental support for management's analysis of business performance.
Non-GAAP net income/(loss), EBITDA and Adjusted EBITDA are calculated as follows
for the periods presented.




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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 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,
                         2022                  2021                2022                 2021
U.S. GAAP net
loss               $            (696 )     $        (125 )   $         (2,812 )     $      (1,843 )
Share-based
compensation                     851                 415                2,762               1,150
Acquisition
related expenses                   8                   4                   31               1,065
Amortization of
intangible
assets                           550                 506                1,649                 773
Non-GAAP net
income             $             713       $         800     $          1,630       $       1,145

Non-GAAP
earnings per
common share:
Basic              $            0.03       $        0.04     $           0.07       $        0.06
Diluted            $            0.03       $        0.03     $           0.06       $        0.05

Weighted-average
common shares
outstanding:
Basic                     22,620,703          21,596,415           22,439,575          19,757,658
Diluted                   25,285,848          26,196,240           25,491,062          22,481,104




                  Reconciliation of U.S. GAAP Net Loss to EBITDA to

Adjusted EBITDA

                                      (Unaudited, in thousands)

                        Three Months Ended September 30,         Nine 

end month September 30,

                            2022                 2021              2022                  2021
U.S. GAAP net loss     $         (696 )       $      (125 )   $        (2,812 )     $        (1,843 )
Depreciation and
amortization                      623                 569               1,862                   931
Interest expense                   19                  24                  57                    64
Interest and other
expense                           165                  17                 281                    13
Income tax
provision/(benefit)               (32 )               137                (315 )                (247 )
EBITDA                             79                 622                (927 )              (1,082 )
Acquisition related
expenses                            8                   4                  31                 1,065
Share-based
compensation                      851                 415               2,762                 1,150
Adjusted EBITDA        $          938         $     1,041     $         1,866       $         1,133



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, 2021.



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 product revenue, sales and marketing, research and development, and
general and administrative expenses.




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



                          Three Months Ended September 30,             Nine Months Ended September 30,
Cloud
Telecommunications
Services                    2022                     2021                2022                  2021
Service revenue       $          4,473         $          4,325     $        13,427       $        12,791
Product revenue                    760                      701               1,944                 1,509
Total revenue         $          5,233         $          5,026     $        15,371       $        14,300
Operating expenses:
Cost of service
revenue               $          1,375         $          1,210     $         4,249       $         3,816
Cost of product
revenue                            453                      461               1,142                   972
Selling and
marketing                        1,704                    1,487               4,963                 4,274
General and
administrative                   2,056                    1,763               6,355                 6,146
Research and
development                        284                      358                 898                 1,096
Total operating
expenses                         5,872                    5,279              17,607                16,304
Operating loss                    (639 )                   (253 )            (2,236 )              (2,004 )
Other expense                      (17 )                    (22 )               (52 )                 (58 )
Loss before tax
benefit/(provision)   $           (656 )       $           (275 )   $        (2,288 )     $        (2,062 )



end of three months September 30, 2022 compared to the end of three months September 30, 2021



Service Revenue



Cloud telecommunications service revenue consists primarily of fees collected
for cloud telecommunications services, professional services, interest from
sales-type leases, reselling broadband Internet services, administrative fees,
website hosting, and web management services. The following table reflects our
service revenue for the three months ended September 30, 2022, compared to the
three months ended September 30, 2021:



                                   Three Months Ended September 30,
                     2022             2021         Dollar Change      Percent Change
Service revenue   $    4,473       $    4,325     $           148                   3 %



The increase in service revenue is due to an increase in telecommunications
services of $113,000, an increase in sales-type lease interest of $24,000, an
increase in one-time fees, commissions and other of $7,000, and an increase in
fees, commissions, and other, recognized over time of $4,000, A substantial
portion of Cloud Telecommunications service revenue is generated through
thirty-six to sixty month service contracts.



Product Revenue



Product revenue consists primarily of fees collected from the sale of desktop
phone devices and third-party equipment. The following table reflects our
product revenue for the three months ended September 30, 2022, compared to the
three months ended September 30, 2021:



                                   Three Months Ended September 30,
                    2022            2021           Dollar Change      Percent Change
Product revenue   $     760       $     701       $            59                   8 %




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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Backlog



Backlog represents the total contract value of all contracts signed, less
revenue recognized from those contracts as of September 30, 2022 and 2021.
Backlog decreased 2%, or $660,000 to $30,063,000 as of September 30, 2022 as
compared to $30,723,000 as of September 30, 2021. Below is a table which
displays the Cloud Telecommunications segment revenue backlog as of July 1, 2022
and 2021, and September 30, 2022 and 2021, which we expect to recognize as
revenue within the next thirty-six to sixty months (in thousands):



Cloud Telecom Backlog July 1, 2022 $29,452
Cloud Telecom Backlog September 30, 2022 $30,063

Cloud Telecom Backlog July 1, 2021 $27,227
Cloud Telecom Backlog September 30, 2021 $30,723



Cost of Service Revenue



Cost of service revenue consists primarily of fees we pay to third-party
telecommunications carriers, broadband Internet providers, software providers,
costs related to installations, customer support salaries, wages and benefits,
and share-based compensation. The following table reflects our cost of service
revenue for the three months ended September 30, 2022, compared to the three
months ended September 30, 2021:



                                            Three Months Ended September 30,
                             2022             2021         Dollar Change       Percent Change
Cost of service revenue   $    1,375       $    1,210     $           165                   14 %




The increase in cost of service revenue was primarily due to added headcount
related to our increase in revenue and company-wide salary increases resulting
in $165,000 in additional costs, an increase of $60,000 for third party
installation services, outsourced customer support, and assistance in the
migration of our customers to our VIP platform, and an increase in other cost of
service revenue of $26,000, offset by an $85,000 decrease in third-party
telecommunications carrier costs.



Cost of Product Revenue


Cost of product revenue includes costs associated with desk phone equipment and third-party equipment.The table below reflects our product cost of revenue for the three months ended September 30, 2022compared to the ending three months September 30, 2021:


                                           Three Months Ended September 30,
                            2022           2021          Dollar Change       Percent Change
Cost of product revenue   $    453       $    461       $            (8 )                 -2 %



The decrease in product cost of revenue was primarily due to our negotiated cost reductions on our desk phone equipment.


Selling and Marketing



Selling and marketing expenses consist primarily of direct and channel sales
representative salaries and benefits, share-based compensation, partner channel
commissions, amortization of costs to acquire contracts, travel expenses, lead
generation services, trade shows, internal and third-party marketing costs, the
production of marketing materials, and sales support software. The following
table reflects our selling and marketing expenses for the three months ended
September 30, 2022, compared to the three months ended September 30, 2021:

                                          Three Months Ended September 30,
                           2022             2021         Dollar Change       Percent Change
Selling and marketing   $    1,704       $    1,487     $           217                   15 %




The increase in selling and marketing expense is due to an increase in
commission expense of $121,000 directly related to the increase in revenue, an
increase in salaries, wages and benefits of $88,000 related to expansion of our
sales team, an increase in travel related costs and tradeshows of $30,000,
offset by a decrease in sales leads and marketing material costs of $20,000 and
a decrease in other sales and marketing expense of $2,000.



General and Administrative



General and administrative expenses consist of salaries, wages and benefits,
share-based compensation for executives, administrative personnel, legal, rent,
equipment, accounting and other professional services, investor relations,
depreciation, amortization of intangibles, and other administrative corporate
expenses. The following table reflects our general and administrative expenses
for the three months ended September 30, 2022, compared to the three months
ended September 30, 2021:



                                            Three Months Ended September 30,
                             2022             2021         Dollar Change       Percent Change
General and
administrative            $    2,056       $    1,763     $           293                   17 %





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         The increase in general and administrative expenses is primarily due to
an increase in administrative salaries, wages, and benefits of $375,000 related
to an increase in headcount and company-wide salary increases, offset by a
decrease in corporate insurance of $37,000 due to an allocation of cost to the
software solutions segment, a decrease in bank processing fees of $13,000, and a
decrease in other general and administrative expense of $32,000.



Research and Development


Research and development expenses primarily consist of salaries, wages and
benefits, 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, 2022, compared to the three months ended September
30, 2021:



                                            Three Months Ended September 30,
                             2022           2021          Dollar Change       Percent Change
Research and development   $    284       $    358       $           (74 )                -21 %



The decrease in research and development expenses was primarily due to a decrease in our mobile application maintenance costs and other development costs. $47,000 and reductions in wages, wages and benefits
$27,000.



Other Expense



Other expense primarily relates to interest expense and net foreign exchange
gains or losses, offset by credit card cash back rewards. The following table
reflects our other expense for the three months ended September 30, 2022,
compared to the three months ended September 30, 2021:



                                 Three Months Ended September 30,
                  2022           2021          Dollar Change       Percent Change
Other expense   $    (17 )     $    (22 )     $             5                  -23 %



nine months end September 30, 2022 compared to the nine months ended September 30, 2021



Service Revenue



Cloud telecommunications service revenue consists primarily of fees collected
for cloud telecommunications services, professional services, interest from
sales-type leases, reselling broadband Internet services, administrative fees,
website hosting, and web management services. The following table reflects our
service revenue for the nine months ended September 30, 2022, compared to the
nine months ended September 30, 2021:



                                   Nine Months Ended September 30,
                     2022             2021        Dollar Change      Percent Change
Service revenue   $    13,427       $ 12,791     $           636                   5 %



The increase in service revenue is due to an increase in telecommunications
service revenue of $397,000, an increase in one time fees, commissions and other
of $182,000, an increase in sales-type lease interest of $40,000, and an
increase in fees, commissions, and other, recognized over time of $17,000. A
substantial portion of Cloud Telecommunications service revenue is generated
through thirty-six to sixty month service contracts.




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Product Revenue



Product revenue consists primarily of fees collected from the sale of desktop
phone devices and third-party equipment. The following table reflects our
product revenue for the nine months ended September 30, 2022, compared to the
nine months ended September 30, 2021:



                                   Nine Months Ended September 30,
                     2022            2021        Dollar Change       Percent Change
Product revenue   $    1,944       $  1,509     $           435                   29 %




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.



Backlog



Backlog represents the total contract value of all contracts signed, less
revenue recognized from those contracts as of September 30, 2022 and 2021.
Backlog decreased 2%, or $660,000 to $30,063,000 as of September 30, 2022 as
compared to $30,723,000 as of September 30, 2021. Below is a table which
displays the Cloud Telecommunications segment revenue backlog as of January 1,
2022 and 2021, and September 30, 2022 and 2021, which we expect to recognize as
revenue within the next thirty-six to sixty months (in thousands):



Cloud Telecom Backlog January 1, 2022 $30,190
Cloud Telecom Backlog September 30, 2022 $30,063

Cloud Telecom Backlog January 1, 2021 $28,551
Cloud Telecom Backlog September 30, 2021 $30,723



Cost of Service Revenue



Cost of service revenue consists primarily of fees we pay to third-party
telecommunications carriers, broadband Internet providers, software providers,
costs related to installations, customer support salaries, wages and benefits,
and share-based compensation. The following table reflects our cost of service
revenue for the nine months ended September 30, 2022, compared to the nine
months ended September 30, 2021:



                                           Nine Months Ended September 30,
                             2022            2021        Dollar Change       Percent Change
Cost of service revenue   $    4,249       $  3,816     $           433                   11 %




The increase in cost of service revenue was primarily due to added headcount
related to our increase in revenue and company-wide salary increases resulting
in $513,000 in additional costs, an increase of $178,000 for third party
installation services, outsourced customer support, and assistance in the
migration of our customers to our VIP platform, and an increase in other cost of
service revenue of $44,000, offset by a $302,000 decrease in telecommunication
carrier costs as we've eliminated costs by migrating customers to our VIP
platform and as we've switched to lower cost telecommunication carriers.



Cost of Product Revenue


Cost of product revenue includes costs associated with desk phone equipment and third-party equipment.The table below reflects our product cost of revenue for the nine months ended September 30, 2022compared to the ending nine months September 30, 2021:


                                           Nine Months Ended September 30,
                             2022            2021        Dollar Change       Percent Change
Cost of product revenue   $    1,142       $    972     $           170                   17 %



The increase in product revenue cost was mainly attributable to the increase in product revenue.



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Selling and Marketing



Selling and marketing expenses consist primarily of direct and channel sales
representative salaries and benefits, share-based compensation, partner channel
commissions, amortization of costs to acquire contracts, travel expenses, lead
generation services, trade shows, internal and third-party marketing costs, the
production of marketing materials, and sales support software. The following
table reflects our selling and marketing expenses for the nine months ended
September 30, 2022, compared to the nine months ended September 30, 2021:



                                         Nine Months Ended September 30,
                           2022            2021        Dollar Change       Percent Change
Selling and marketing   $    4,963       $  4,274     $           689                   16 %




The increase in selling and marketing expense is due to an increase in salaries,
wages and benefits of $366,000 related to expansion of our sales team, an
increase in commission expense of $193,000 directly related to the increase in
revenue, and an increase in travel related costs and tradeshows of $161,000,
offset by a decrease in other selling and marketing expenses of $31,000.



General and Administrative



General and administrative expenses consist of salaries, wages and benefits,
share-based compensation for executives, administrative personnel, legal, rent,
equipment, accounting and other professional services, investor relations,
depreciation, amortization of intangibles, and other administrative corporate
expenses. The following table reflects our general and administrative expenses
for the nine months ended September 30, 2022, compared to the nine months ended
September 30, 2021:



                                             Nine Months Ended September 30,
                              2022             2021         Dollar Change      Percent Change
General and
administrative             $    6,355       $    6,146     $           209                   3 %




The increase in general and administrative expenses is primarily due an increase
in administrative salaries, wages and benefits of $1,207,000 related to an
increase in share-based compensation as a result of a company-wide employee
retention grant, an increase in headcount, and company-wide salary increases,
and an increase in telecommunication fees of $53,000, offset by a decrease in
acquisition related expenses of $1,050,000, related to the 2021 acquisitions of
Centric Telecom and NetSapiens, and a decrease in other general and
administrative expenses of $1,000.



Research and Development


Research and development expenses primarily consist of salaries, wages and
benefits, 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, 2022, compared to the nine months ended September 30,
2021:



                                            Nine Months Ended September 30,
                            2022            2021         Dollar Change       Percent Change
Research and development   $   898       $    1,096     $          (198 )                -18 %



The decrease in research and development expenses was primarily due to a decrease in our mobile application maintenance costs and other development costs. $105,000and reductions in wages, wages and benefits
$96,000offset by one $3,000 Product testing costs increase.


Other Expense



Other expense primarily relates to interest expense and net foreign exchange
gains or losses, offset by credit card cash back rewards. The following table
reflects our other expense for the nine months ended September 30, 2022,
compared to the nine months ended September 30, 2021:



                                 Nine Months Ended September 30,
                  2022           2021          Dollar Change       Percent Change
Other expense   $    (52 )     $    (58 )     $             6                  -10 %





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Software Solutions segment operating results (in thousands):

related to the merger NetSapiens, Inc.superior June 1, 2021, created the following Software Solutions Operations divisions.The operating results of the Software Solutions segment have been included in our consolidated results of operations from the date of acquisition June 1, 2021.



                          Three Months Ended September 30,            Nine Months Ended September 30,
Software Solutions          2022                     2021              2022                  2021
Software solutions
revenue               $          3,875         $          3,784     $    10,741         $         4,796
Operating expenses:
Cost of software
solutions revenue                1,170                    1,675           3,987                   2,201
Selling and
marketing                        1,028                      798           3,124                   1,187
General and
administrative                     744                    1,005           2,451                   1,417
Research and
development                        838                        -           1,732                       -
Total operating
expenses                         3,780                    3,478          11,294                   4,805
Operating
income/(loss)                       95                      306            (553 )                    (9 )
Other expense                     (167 )                    (19 )          (286 )                   (19 )
Income/(loss)
before tax
benefit/(provision)   $            (72 )       $            287     $      (839 )       $           (28 )



end of three months September 30, 2022 compared to the end of three months September 30, 2021



Software Solutions Revenue



Software solutions revenue consists primarily of software license fees,
subscription maintenance and support, and professional services. Software
licenses are billed by the number of concurrent sessions a Partner has purchased
or subscribes to. Subscription maintenance and support is ongoing and provides
for software updates and improvements, support for add-on modules, bug fixes,
and other general maintenance items. 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, 2022, compared to the three months ended September
30, 2021:



                                            Three Months Ended September 30,
                             2022             2021          Dollar Change      Percent Change
Software solutions
revenue                   $    3,875       $    3,784      $            91                   2 %




The increase is primarily related to a $546,000 increase in recurring software
license and maintenance and support subscriptions, an increase in professional
services of $33,000, offset by a decrease in perpetual software licenses of
$488,000.



Backlog



Backlog represents the total contract value of all contracts signed, less
revenue recognized from those contracts as of September 30, 2022 and 2021.
Backlog increased 6%, or $786,000 to $13,334,000 as of September 30, 2022 as
compared to $12,558,000 as of September 30, 2021 as a result of our June 1, 2021
acquisition. Below is a table which displays the software solutions segment
revenue backlog as of July 1, 2022 and 2021, and September 30, 2022 and 2021,
which we expect to recognize as revenue within the next thirty-six to sixty
months (in thousands):



Backlog of software solutions July 1, 2022 $12,669
Backlog of software solutions September 30, 2022 $13,344

Backlog of software solutions July 1, 2021 $12,828
Backlog of software solutions September 30, 2021 $12,558

Software solution revenue cost



Cost of software solutions revenue consists primarily of salaries, wages and
benefits, share-based compensation, amortization expense related to the
technology, cost of Data Center hosting, third-party software modules and
outsourced services required to install and support software solutions. The
following table reflects our cost of service revenue for the three months ended
September 30, 2022, compared to the three months ended September 30, 2021:

                                            Three Months Ended September 30,
                             2022             2021         Dollar Change       Percent Change
Cost of software
solutions revenue         $    1,170       $    1,675     $          (505 )                -30 %





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The decrease in cost of service revenue is primarily related to the
reclassification of $738,000  of research and development expenses out of cost
of service revenue after carefully reviewing operating expenses that qualify as
research and development operating expenses, a $50,000 decrease in amortization
expense related to the technology, offset by an increase in cost of service
revenue of $284,000 related to the company-wide salary increases that resulted
in $158,000 of additional costs, an increase of $67,000 in data center hosting
related to data center expansion and increased activity, an increase of $41,000
in third-party software modules and outsourced services required to install and
support software solutions also due to increased activity, and a $18,000
increase in share-based compensation.



Selling and Marketing



Selling and marketing expenses consist primarily of sales and marketing
salaries, wages and benefits, commissions, share-based compensation, travel
expenses, lead generation services, trade shows, third-party marketing services,
the production of marketing materials, amortization expense related to customer
relationships intangible asset, and sales support software. The following table
reflects our selling and marketing expenses for the three months ended September
30, 2022, compared to the three months ended September 30, 2021:



                                         Three Months Ended September 30,
                           2022            2021         Dollar Change       Percent Change
Selling and marketing   $    1,028       $    798      $           230     
             29 %




The increase in selling and marketing expenses is primarily related to an
increase in commissions of $99,000, an increase in salaries, wages and benefits
of $76,000, an increase in share-based compensation of $29,000, an increase in
customer relationships intangible asset amortization expense of $74,000, an
increase in sales support software of $17,000, and a $20,000 increase in other
selling and marketing expenses, offset by a decrease of $85,000 in third-party
marketing services.



General and Administrative


General and administrative expenses consist of salaries, wages and benefits for
executives, share-based compensation, administrative personnel, amortization of
intangible asset related to trademarks and trade names, 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, 2022, compared to the three months
ended September 30, 2021:



                                            Three Months Ended September 30,
                             2022             2021         Dollar Change       Percent Change
General and
administrative            $      744       $    1,005     $          (261 )                -26 %



The decrease in general and administrative expenses is primarily related to the
reclassification of $100,000 of research and development expenses out of general
& administrative expenses after carefully reviewing expenses that qualify as
research and development operating expenses, and a reduction in professional
service fees of $117,000, a decrease in equipment of $38,000, and a $6,000
decrease in other administrative corporate expenses.



Research and Development


Research and development expenses primarily consist of salaries, wages and
benefits, share-based compensation, and outsourced 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, 2022,
compared to the three months ended September 30, 2021:



                           2022      2021       Dollar Change      Percent Change
Research and development   $ 838     $   -     $           838                   -





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The increase in research and development expenses is primarily related to the
reclassification of research and development expenses out of cost of service
revenue of $738,000 and general and administrative expenses of $100,000 after
carefully reviewing operating expenses that qualify as research and development
operating expenses.



Other Expense



Other expense primarily relates to interest expense and net foreign exchange
gains or losses. The following table reflects our other expense for the three
months ended September 30, 2022, compared to the three months ended September
30, 2021:



                                Three Months Ended September 30,
                  2022           2022         Dollar Change       Percent Change
Other expense   $    (167 )     $   (19 )    $          (148 )                779 %



The increase in other expenses was mainly related to the net exchange loss during the period.

nine months end September 30, 2022 compared to the nine months ended September 30, 2021



Software Solutions Revenue



Software solutions revenue consists primarily of software license fees,
subscription maintenance and support, and professional services. Software
licenses are billed by the number of concurrent sessions a Partner has purchased
or subscribes to. Subscription maintenance and support is ongoing and provides
for software updates and improvements, support for add-on modules, bug fixes,
and other general maintenance items. 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, 2022, compared to the nine months ended September 30,
2021:



                                             Nine Months Ended September 30,
                                2022         2021        Dollar Change       Percent Change
Software solutions revenue   $   10,741     $ 4,796     $         5,945                  124 %




The increase is primarily related to nine months of revenue for the nine months
ended September 30, 2022, compared to only four months of revenue for the nine
months end September 30, 2021, due to the June 1, 2021 acquisition date.



Backlog



Backlog represents the total contract value of all contracts signed, less
revenue recognized from those contracts as of September 30, 2022 and 2021.
Backlog increased 6%, or $786,000 to $13,334,000 as of September 30, 2022 as
compared to $12,558,000 as of September 30, 2021. Below is a table which
displays the software solutions segment revenue backlog as of January 1, 2022
and 2021, and September 30, 2022 and 2021, which we expect to recognize as
revenue within the next thirty-six to sixty months (in thousands):



Backlog of software solutions January 1, 2022 $13,034
Backlog of software solutions September 30, 2022 $13,344

Backlog of software solutions January 1, 2021 $ – Software Solutions Backlog September 30, 2021 $12,558




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Software solution revenue cost



Cost of software solutions revenue consists primarily of salaries, wages and
benefits, share-based compensation, amortization expense related to the
technology, cost of Data Center hosting, third-party software modules and
outsourced services required to install and support software solutions. The
following table reflects our cost of service revenue for the nine months ended
September 30, 2022, compared to the nine months ended September 30, 2021:



                                             Nine Months Ended September 30,
                              2022            2021         Dollar Change       Percent Change
Cost of software
solutions revenue          $    3,987       $   2,201     $         1,786                   81 %



The increase in cost of service revenue is primarily related to nine months of
costs for the nine months ended September 30, 2022, compared to only four months
of costs for the nine months end September 30, 2021, due to the June 1, 2021
acquisition date, and the reclassification of $1,530,000 in research and
development expenses out of cost of service revenue for the nine months ended
September 30, 2022, after carefully reviewing operating expenses that qualify as
research and development operating expenses.



Selling and Marketing



Selling and marketing expenses consist primarily of sales and marketing
salaries, wages and benefits, commissions, share-based compensation, travel
expenses, lead generation services, trade shows, third-party marketing services,
the production of marketing materials, and sales support software. The following
table reflects our selling and marketing expenses for the nine months ended
September 30, 2022, compared to the nine months ended September 30, 2021:



                                        Nine Months Ended September 30,
                          2022          2021        Dollar Change       Percent Change
Selling and marketing   $   3,124      $ 1,187     $         1,937                  163 %



The increase in selling and marketing expenses is primarily related to nine
months of expenses for the nine months ended September 30, 2022, compared to
only four months of expenses for the nine months end September 30, 2021, due to
the June 1, 2021 acquisition date.



General and Administrative


General and administrative expenses consist of salaries, wages and benefits for
executives, share-based compensation, administrative personnel, amortization of
intangible asset related to customer lists, 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, 2022, compared to the nine months ended
September 30, 2021:



                                             Nine Months Ended September 30,
                               2022           2021        Dollar Change       Percent Change
General and administrative   $   2,451       $ 1,417     $         1,034   
               73 %



The increase in general and administrative expenses is primarily related to nine
months of expenses for the nine months ended September 30, 2022, compared to
only four months of expenses for the nine months end September 30, 2021, due to
the June 1, 2021 acquisition date, and the reclassification of $202,000 of
research and development expenses out of general & administrative expenses after
carefully reviewing expenses that qualify as research and development operating
expenses.



Research and Development


Research and development expenses primarily consist of salaries, wages and
benefits, share-based compensation, and outsourced 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, 2022,
compared to the nine months ended September 30, 2021:



                                           Nine Months Ended September 30,
                              2022           2021        Dollar Change      Percent Change
Research and development   $     1,732       $   -      $         1,732                   -




The increase in research and development expenses is primarily related to the
reclassification of research and development expenses out of cost of service
revenue of $1,530,000 and general and administrative expenses of $202,000 after
carefully reviewing operating expenses that qualify as research and development
operating expenses.




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Other Expense



Other expense primarily relates to interest expense and net foreign exchange
gains or losses. The following table reflects our other expense for the nine
months ended September 30, 2022, compared to the nine months ended September 30,
2021:



                            Nine Months Ended September 30,
                 2022      2021       Dollar Change      Percent Change
Other expense   $ (286 )   $ (19 )   $          (267 )            1405%



The increase in other expenses is mainly related to the net foreign exchange loss for the nine months ended September 30, 2022.

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, 2022 and December 31, 2021,
we had cash and cash equivalents of $4,821,000 and $7,468,000, 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 twelve months.



Operating Activities


Cash provided by or used in operating activities is driven by our net loss, 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 used in operating activities
for the nine months ended September 30, 2022, compared to the nine months ended
September 30, 2021:



                                              Nine Months Ended September 30,
                                2022          2021         Dollar Change       Percent Change
Net cash used in operating
activities                   $   (2,665 )   $    (473 )   $        (2,192 )                463 %




The net cash used for operations was primarily driven by our net loss for the
nine months ended September 30, 2022 of $696,000, an increase in accounts
receivable, an increase in equipment financing receivables, an increase in
contract costs, an increase in prepaid expenses, an increase in income tax
receivable, a decrease in accounts payable and accrued expenses, and a decrease
in contract liabilities, offset by non-cash expenses for depreciation and
amortization and share-based compensation.



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 used in investing activities for the nine
months ended September 30, 2022, compared to the nine months ended September 30,
2021:



                                              Nine Months Ended September 30,
                                2022          2021         Dollar Change       Percent Change
Net cash used in investing
activities                   $     (192 )   $ (10,596 )   $        10,404                  -98 %



Net cash used in investing activities for the nine months ended September 30, 2022mainly related to the purchase of property and equipment.

Net cash used for investing activities for the nine months ended September 30,
2021, primarily relates to cash paid for a business combination. During the nine
months ended September 30, 2021, the Company acquired 100% of the issued and
outstanding shares of Centric Telecom, Inc., a provider of telecommunications
products, services, and solutions in Northern Virginia. The aggregate purchase
price of $3,255,000 consisted of $2,163,000 of cash paid at closing, 46,662
shares of our common stock with an estimated fair value of $346,000 issued at
closing, and $746,000 of estimated contingent consideration to be paid out based
on annualized revenue recognized during the nine month earn-out period. On
September 1, 2021, the Company acquired 100% of the issued and outstanding
shares of NetSapiens, Inc. ("NetSapiens"), a provider of a comprehensive suite
of unified communications (UC), video conferencing, collaboration & contact
center solutions to service providers, servicing over 1.7M users around the
globe. The aggregate purchase price was approximately $49.1 million, consisting
of $10 million in cash, and approximately $39 million in common stock and stock
options. In connection with the closing of the Merger, the Company issued
3,097,309 shares of the Company's common stock valued at $5.47 per share for
common stock consideration of approximately $16.9 million, and 4,482,328 options
under the Crexendo, Inc. 2021 Equity Incentive Plan with an aggregate value of
$22.1 million, net of the aggregate exercise price of $5.6 million.




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Financing Activities


Cash provided by or used in financing activities is driven by the proceeds from
the exercise of options, taxes paid on the net settlement of stock options and
RSUs, payment of contingent consideration, proceeds from finance leases and
notes payable, repayments made on finance leases and notes payable, dividend
payments, 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, 2022, compared to
the nine months ended September 30, 2021:



                                             Nine Months Ended September 30,
                               2022           2021         Dollar Change       Percent Change
Net cash provided
by/(used in) financing
activities                  $      (36 )    $   1,081     $        (1,117 )               -103 %




Net cash used in financing activities in the nine months ended September 30,
2022, primarily relates to cash proceeds from the exercise of stock options of
$576,000, offset by the payments of employee tax withholdings related to the net
settlement of stock options and RSUs of $135,000, dividend payments of $336,000,
and repayments of notes payable and finance leases of $141,000.



Net cash provided by financing activities in the nine months ended September 30,
2021, primarily relates to cash proceeds from the exercise of stock options of
$1,177,000 offset by the payments of employee tax withholdings related to the
net settlement of stock options of $155,000.



Contractual Obligations and Commitments

Except as set forth in Notes 4, 10, and 13 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, 2021.



Off-balance sheet arrangements

as, September 30, 2022we do not participate in any off-balance sheet arrangements, as defined in SEC Regulation SK Item 303(a)(4)(ii).


Related Party Transactions



None


Impact of recent accounting announcements



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

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