17. Commitments and Contingencies

Annual Employee Bonus Plan Accrual

We utilize incentive bonuses to reward performance achievements, which provides potential annual cash bonus awards to Company employees, including Named Executive Officers (“NEOs”). Under the Bonus Plan, the Compensation Committee of the Board of Directors of the Company (the “Board”) has established a bonus pool of $1,089, for our NEOs and executive management team for the year ending December 31, 2026. The Board established a bonus pool of $409 for our non-executive employees, for the year ending December 31, 2026. Participants are eligible to receive cash bonus awards based upon achieving annual performance targets established by the Board for the year ending December 31, 2026, relating to annual revenue and adjusted EBITDA performance targets. Awards will be paid on a tiered scale based upon actual performance as a percentage of the performance targets with a floor and cap. Payments for individual performance targets met or exceeded are payable, whether or not all performance targets are met, consistent with the weighted amounts for each performance target within the bonus pools. Bonus awards for NEOs and executive management will be weighted 50% on annual revenue and 50% on Adjusted EBITDA. No bonus will be awarded for any performance target for which actual performance is less than 90% of target. At 90% or greater actual performance relative to the target, 50% of the weighted bonus amount for the performance target is payable. From 90% to 100% actual performance relative to the target, the remaining 50% of the weighted bonus amount is awarded pro rata with the percentage of actual performance exceeding 90% of target (i.e., each 1% excess over 90% of performance target equals 5% of the weighted bonus amount payable). If actual performance reaches 105% of the revenue performance target or 110% of the adjusted EBITDA performance target or greater for any individual performance target, then an additional 10% of the amount apportioned to that performance target will be payable as an additional bonus. Historically, for the years ended December 31, 2025 and 2024, the employee bonus plan performance targets were achieved at 100% or greater. Based on our financial performance as of September 30, 2026 and forecasted annualized results for the year ending December 31, 2026, management determined that the achievement of 100% of the annual revenue and Adjusted EBITDA performance targets is probable. Based on management’s estimate, the Company recorded an accrual of $1,124 for the employee bonus plan, which is included in accrued expense in the accompanying condensed consolidated balance sheet at September 30, 2026.

Performance-Based Stock Price Appreciation Incentive Plan.

We utilize an equity-based compensation incentive plan for certain of our NEOs responsible for investor relations, designed to reward performance tied to the Company’s stock price appreciation. The plan is structured to reward performance that directly benefits our shareholders by tying the equity-based compensation in the form of RSU grants to the appreciation of our stock price. This plan is intended to motivate and retain key executives while aligning their interests with the creation of stockholder value. The share price performance targets range from $8.00 to $20.50 in $0.50 increments and must be met or exceeded during the trading day for at least fifteen (15) trading days during a twenty (20) trading day period. If any of the performance targets are achieved, each eligible NEOs will be awarded an RSU grant equal to 10,000 RSUs, and the RSUs will vest quarterly over a one-year term. The performance-based stock price appreciation incentive plan is a three-year incentive plan and the Compensation Committee has the right to cancel the plan annually on the anniversary date of the plan. During the three-year term, the individual performance target may be achieved more than once provided certain conditions in the plan are met.

Purchase Obligations

In February 2024, the Company entered into a $5.4 million noncancellable five-year hosting service contract with Oracle, a third-party network service provider. The contract includes minimum quarterly commitments and the requirements to maintain the service level for the entire contract period. Under this agreement, $324 remains due during fiscal year 2026, $1.5 million will be due during fiscal 2027, $1.7 million will be due during fiscal 2028, and $456 will be due during fiscal 2029. During the three months ended September 30, 2026 and 2025, the Company has expensed $294 and $189, respectively and for the nine months ended September 30, 2026 and 2025 was $1,168 and $211, respectively, of the purchase obligation and $108 and $234 is included in accrued expenses at September 30, 2026 and December 31, 2025, respectively.

Legal Proceedings

In the ordinary course of business, the Company may be involved in a variety of claims, lawsuits, investigations, and other proceedings, including patent infringement claims, employment litigation, regulatory compliance matters, and contractual disputes, that can arise in the normal course of the Company's operations. The Company recognizes a provision when management believes information available prior to the issuance of the financial statements indicates it is probable a loss has been incurred as of the date of the financial statements and the amount of loss can be reasonably estimated. The Company adjusts the amount of the provision to reflect the impact of negotiations, settlements, rulings, advice of legal counsel, and other information and events pertaining to a particular case. As of September 30, 2026, the Company does not have a recorded liability for estimated losses. Legal costs are expensed as incurred.

On March 5, 2026, ReadyComm LLC (“ReadyComm”) filed a complaint against Crexendo, Inc. in the United States District Court for the District of Delaware, captioned ReadyComm LLC v. Crexendo, Inc., Case No. 1:26-cv-00234-MN. The complaint alleges that certain of the Company’s products and services directly and indirectly infringe one or more claims of U.S. Patent No. 9,179,011, titled “Telephone Communication System and Method of Using.” ReadyComm seeks monetary damages, interest, costs and expenses, attorneys’ fees under certain circumstances, and other relief the court may deem appropriate.

The Company denies ReadyComm’s allegations and does not believe that it has infringed any valid and enforceable claim of the patent. The Company has asserted counterclaims seeking declarations that it does not infringe the patent and that the patent is invalid, as well as dismissal of the complaint with prejudice and recovery of its costs and attorneys’ fees. ReadyComm has denied the substantive allegations of the Company’s counterclaims. The litigation and discovery therein remain at an early stage.

The Company intends to vigorously defend against ReadyComm’s claims and pursue its counterclaims. Based on the information currently available, the Company does not believe that a loss is probable and, therefore, has not recorded a reserve relating to this matter. However, litigation is inherently uncertain, and the ultimate outcome cannot presently be predicted.