Crexendo (CXDO) 10-Q 4 Aug 15 2015 Q2 Quarterly report Financial data

Document and Entity Information

Document and Entity Information - shares	6 Months Ended
	Jun. 30, 2015	Jul. 31, 2015
Document And Entity Information
Entity Registrant Name	Crexendo, Inc.
Entity Central Index Key	1,075,736
Document Type	10-Q
Document Period End Date	Jun. 30, 2015
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Is Entity a Well-known Seasoned Issuer?	No
Is Entity a Voluntary Filer?	No
Is Entity's Reporting Status Current?	Yes
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		13,200,624
Document Fiscal Period Focus	Q2
Document Fiscal Year Focus	2,015

Condensed Consolidated Balance

Condensed Consolidated Balance Sheets (Unaudited) - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014
Current Assets:
Cash and cash equivalents	$ 1,782	$ 2,906
Restricted cash	129	133
Trade receivables, net of allowance for doubtful accounts of $22 as of June 30, 2015 and $49 as of December 31, 2014	345	543
Inventories	79	72
Equipment financing receivables	153	171
Prepaid expenses and other	1,194	1,032
Total Current Assets	3,682	4,857
Certificate of deposit	251	251
Long-term trade receivables, net of allowance for doubtful accounts of $28 as of June 30, 2015 and $19 as of December 31, 2014	95	64
Long term equipment financing receivables	397	455
Property and equipment, net	56	68
Deferred income tax assets, net	381	381
Intangible assets	552	676
Goodwill	272	272
Long-term prepaid rent	215	376
Other long-term assets	228	114
Total Assets	6,129	7,514
Current Liabilities:
Accounts payable	95	47
Accrued expenses	1,008	1,331
Income tax payable	24	7
Contingent Consideration	110	211
Deferred income tax liability	381	381
Deferred revenue, current portion	634	726
Total Current Liabilities	2,252	2,703
Deferred revenue, net of current portion	95	64
Other long-term liabilities	156	203
Total Liabilities	2,503	2,970
Stockholders Equity
Preferred stock, par value $0.001 per share - authorized 5,000,000	0	0
Common stock, par value $0.001 per share - authorized 25,000,000 shares, 13,200,624 shares outstanding as of June 30, 2015 and 12,681,617 shares	13	13
Additional paid-in capital	56,725	55,413
Accumulated deficit	(53,112)	(50,882)
Total Stockholders' Equity	3,626	4,544
Total Liabilities and Stockholders' Equity	$ 6,129	$ 7,514

Condensed Consolidated Balance3

Condensed Consolidated Balance Sheets (Unaudited) (Parenthetical) - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014
Assets
Allowance for Doubtful Accounts - Trade Receivables	$ 22	$ 49
Allowance for Doubtful accounts - Long Term Trade Receivables	$ 28	$ 19
Stockholders Equity
Preferred Stock par value	$ 0.001	$ 0.001
Preferred Stock Shares Authorized	5,000,000	5,000,000
Preferred Stock Issued	0	0
Common Stock par value	$ 0.001	$ 0.001
Common Stock Shares Authorized	25,000,000	25,000,000
Common Stock Outstanding	13,200,624	12,681,617

Condensed Consolidated Statemen

Condensed Consolidated Statements of Operations (Unaudited) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
Income Statement [Abstract]
Revenue	$ 1,890	$ 1,808	$ 3,742	$ 3,880
Operating expenses:
Cost of revenue	855	884	1,716	1,814
Selling and marketing	580	504	1,183	1,157
General and administrative	1,375	1,548	2,935	3,298
Research and development	165	435	368	849
Total operating expenses	2,975	3,371	6,202	7,118
Loss from operations	(1,085)	(1,563)	(2,460)	(3,238)
Other income (expense):
Interest income	7	$ 37	13	$ 85
Interest expense	(3)		(13)
Other income, net	29	$ 45	248	$ 74
Total other income, net	33	82	248	159
Loss before income tax	(1,052)	(1,481)	(2,212)	(3,079)
Income tax provision	(8)	(13)	(18)	(47)
Net loss	$ (1,060)	$ (1,494)	$ (2,230)	$ (3,126)
Net loss per common share:
Basic	$ (0.08)	$ (0.13)	$ (0.18)	$ (0.28)
Diluted	$ (0.08)	$ (0.13)	$ (0.18)	$ (0.28)
Weighted-average common shares outstanding:
Basic	12,700,624	11,173,762	12,699,784	11,043,770
Diluted	12,700,624	11,173,762	12,699,784	11,043,770

Condensed Consolidated Stateme5

Condensed Consolidated Statement of Stockholders' Equity (Unaudited) - 6 months ended Jun. 30, 2015 - USD ($) $ in Thousands	Common Stock	Additional Paid-In Capital	Accumulated Deficit	Total
Beginning Balance, Amount at Dec. 31, 2014	$ 13	$ 55,413	$ (50,882)	$ 4,544
Beginning Balance, Shares at Dec. 31, 2014	12,681,617
Expense for stock options granted to employees		582		582
Issuance of common stock in connection with exercise of warrants, Amount		690		690
Issuance of common stock in connection with exercise of warrants, Shares	500,000
Issuance of common stock from contingent consideration, Amount		40		40
Issuance of common stock from contingent consideration, Shares	19,007
Net loss			(2,230)	(2,230)
Ending Balance, Amount at Jun. 30, 2015	$ 13	$ 56,725	$ (53,112)	$ 3,626
Ending Balance, Shares at Jun. 30, 2015	13,200,624

Condensed Consolidated Stateme6

Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$ (2,230)	$ (3,126)
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization of prepaid rent	161	107
Depreciation and amortization	160	393
Expense for stock options issued to employees	582	429
Gain on disposal of property and equipment	0	(1)
Amortization of deferred gain	(47)	(32)
Change in fair value of contingent consideration	0	3
Changes in assets and liabilities, net of effects of acquisitions:
Trade receivables	167	461
Equipment financing receivables	76	(121)
Inventories	(7)	102
Income taxes receivable	0	12
Prepaid expenses and other	(162)	(108)
Other long-term assets	(114)	76
Accounts payable, accrued expenses and other	(275)	38
Income tax payable	17	0
Deferred revenue	(61)	(445)
Net cash used in operating activities	(1,733)	(2,212)
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment	(24)	(3)
Proceeds from sale of property and equipment	0	2,002
Acquisition of One Stop Voice	0	(195)
Change in restricted cash	4	5
Purchase of long-term investment	0	(1)
Net cash (used in)/provided by investing activities	(20)	1,808
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from exercise of options	0	42
Proceeds from exercise of warrants	690	0
Payments of contingent consideration	(61)	(37)
Net cash (used in)/ provided by financing activities	629	5
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS	(1,124)	(399)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	2,906	3,076
CASH AND CASH EQUIVALENTS, END OF PERIOD	1,782	2,677
Supplemental disclosure of cash flow information:
Income taxes	(1)	11
Supplemental disclosure of non-cash investing and financing information:
Business acquisition with stock (Note 3)	0	134
Contingent consideration related to acquisition (Note 3)	0	211
Prepayment of rent with common stock	0	966
Issuance of common stock from contingent consideration related to business acquisition	$ 40	$ 0

1. Significant Accounting Polic

1. Significant Accounting Policies	6 Months Ended
	Jun. 30, 2015
Significant Accounting Policies
1. Summary of Significant Accounting Policies	Description of Business - The Company has transformed into a start-up company with the inherent risks and uncertainties of funding operations until profitability is achieved. We currently plan to fund our operations during the next twelve months using our cash and cash equivalents of $1,782,000. However, after considering the Company’s historical negative cash flows from operating activities as well as internal forecasts, such amount does not appear adequate to fund our anticipated cash needs for the next twelve months. Accordingly, the Company will be required to obtain additional debt or equity financing such as that available from its CEO to sustain operations. The Company received a commitment from the CEO, and major shareholder, in July 2015 that, if needed, he would provide up to $2,000,000 of financial support to enable the Company to fund its operations through September 30, 2016. As such, the Company believes it will have sufficient funds to sustain its operations during the next twelve months as a result of the sources of funding detailed above. Basis of Presentation – Cash and Cash Equivalents Restricted Cash Trade Receivables Allowance for Doubtful Accounts Interest Income Inventory Certificate of Deposit Property and Equipment Computer and office equipment 2 to 5 years Computer software 3 years Furniture and fixtures 4 years Leasehold improvements 2 to 5 years Maintenance and repairs are expensed as incurred. The cost and accumulated depreciation of property and equipment sold or otherwise retired are removed from the accounts and any related gain or loss on disposition is reflected in net income or loss for the year. Goodwill Intangible Assets We periodically review the estimated useful lives of our intangible assets and review these assets for impairment whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. The determination of impairment is based on estimates of future undiscounted cash flows. If an intangible asset is considered to be impaired, the amount of the impairment will be equal to the excess of the carrying value over the fair value of the asset. Use of Estimates - Revenue Recognition - Software licenses and DVD training courses sold under EPTAs are recognized as revenue upon receipt of cash from customers and not at the time of sale. Accounting standards require revenue to be deferred until customer payments are received if collection of the original principal balance is not probable. We enter into agreements where revenue is derived from multiple deliverables including any mix of products and/or services. For these arrangements, we determine whether the delivered item(s) has value to the customer on a stand-alone basis, and in the event the arrangement includes a general right of return relative to the delivered item(s), whether the delivery or performance of the undelivered item(s) is considered probable and substantially in our control. If these criteria are met, the arrangement consideration is allocated to the separate units of accounting based on each unit’s relative selling price. If these criteria are not met, the arrangement is accounted for as a single unit of accounting which would result in revenue being recognized ratably over the contract term or deferred until the earlier of when such criteria are met or when the last undelivered element is delivered. The amount of product and services revenue recognized for arrangements with multiple deliverables is impacted by the allocation of arrangement consideration to the deliverables in the arrangement based on the relative selling prices. In determining our selling prices, we apply the selling price hierarchy using vendor specific objective evidence (“VSOE”) when available, third-party evidence of selling price (“TPE”) if VSOE does not exist, and best estimated selling price (“BESP”) if neither VSOE nor TPE is available. VSOE of fair value for elements of an arrangement is based upon the normal pricing and discounting practices for a deliverable when sold separately. In determining VSOE, we require that a substantial majority of the selling prices fall within a reasonably narrow pricing range, generally evidenced by a substantial majority of such historical stand-alone transactions falling within a reasonably narrow range of the median rate. In addition, we consider major service groups, geographies, customer classifications, and other variables in determining VSOE. We are typically not able to determine TPE for our products or services. TPE is determined based on competitor prices for similar deliverables when sold separately. Generally, our offerings contain a significant level of differentiation such that the comparable pricing of products with similar functionality is difficult to obtain. Furthermore, we are unable to reliably determine what similar competitor products’ selling prices are on a stand-alone basis. When we are unable to establish the selling price using VSOE or TPE, we use BESP in our allocation of arrangement consideration. The objective of BESP is to determine the price at which we would transact a sale if the product or service were sold on a stand-alone basis. We determine BESP for a product or service by considering multiple factors including, but not limited to, cost of products, gross margin objectives, pricing practices, geographies, customer classes and distribution channels. We recognize revenue for delivered elements only when we determine there are no uncertainties regarding customer acceptance. Changes in the allocation of the sales price between delivered and undelivered elements can impact the timing of revenue recognized but does not change the total revenue recognized on any agreement. Professional Services Revenue Telecommunications Services Hosting and Web Hosting Revenue - Equipment Sales and Financing Revenue - Fees generated from renting our hosted telecommunication equipment (IP or cloud telephone devices) through leasing contracts are recognized as revenue based on whether the lease qualifies as an operating lease or sales-type lease. The two primary accounting provisions which we use to classify transactions as sales-type or operating leases are: 1) lease term to determine if it is equal to or greater than 75% of the economic life of the equipment and 2) the present value of the minimum lease payments to determine if they are equal to or greater than 90% of the fair market value of the equipment at the inception of the lease. The economic life of most of our products is estimated to be three years, since this represents the most frequent contractual lease term for our products, and there is no residual value for used equipment. Residual values, if any, are established at the lease inception using estimates of fair value at the end of the lease term. The vast majority of our leases that qualify as sales-type leases are non-cancelable and include cancellation penalties approximately equal to the full value of the lease receivables. Leases that do not meet the criteria for sales-type lease accounting are accounted for as operating leases. Revenue from sales-type leases is recognized upon installation and the interest portion is deferred and recognized as earned. Revenue from operating leases in recognized ratably over the applicable service period. Commission Revenue - Cost of Revenue Prepaid Sales Commissions Research and Development Fair Value Measurements Level 1 Level 2 ● Quoted prices for similar assets or liabilities in active markets; ● Quoted prices for identical or similar assets in non-active markets; ● Inputs other than quoted prices that are observable for the asset or liability; and ● Inputs that are derived principally from or corroborated by other observable market data. Level 3 Income Taxes - Interest and penalties associated with income taxes are classified as income tax expense in the consolidated statements of operations. We do not intend to indefinitely reinvest the undistributed earnings of our United Kingdom subsidiary, therefore, we have provided for U.S. deferred income taxes on such undistributed foreign earnings. All other foreign subsidiaries are considered disregarded foreign entities for US tax purposes. Stock-Based Compensation - Comprehensive Loss Operating Segments Significant Customers Recently Adopted Accounting Guidance - In June 2014, the FASB issued ASU No. 2014-12, Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period. This ASU requires that a performance target that affects vesting and could be achieved after the requisite service period be treated as a performance condition. A reporting entity should apply existing guidance in ASC 718, Compensation-Stock Compensation, as it relates to such awards. ASU 2014-12 is effective for us in our first quarter of fiscal 2017 with early adoption permitted using either of two methods: (i) prospective to all awards granted or modified after the effective date; or (ii) retrospective to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter, with the cumulative effect of applying ASU 2014-12 as an adjustment to the opening retained earnings balance as of the beginning of the earliest annual period presented in the financial statements. The Company is currently assessing the impact of this pronouncement to its consolidated financial statements. In August 2014, the FASB issued ASU 2014-15. This ASU requires management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. Specifically, the ASU (1) provides a definition of the term substantial doubt, (2) requires an evaluation every reporting period including interim periods, (3) provides principles for considering the mitigating effect of management’s plans, (4) requires certain disclosures when substantial doubt is alleviated as a result of consideration of management’s plans, (5) requires an express statement and other disclosures when substantial doubt is not alleviated, and (6) requires an assessment for a period of one year after the date that the financial statements are issued (or available to be issued). This standard is effective for the fiscal years ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted. The Company is currently evaluating the new guidance to determine the impact it will have on its consolidated financial statements.

2. Net Loss Per Common Share

2. Net Loss Per Common Share	6 Months Ended
	Jun. 30, 2015
Net Loss Per Common Share
2. Net Income (Loss) Per Common Share	Basic net loss per common share is computed by dividing the net loss for the period by the weighted-average number of common shares outstanding during the period. Diluted net loss per common share is computed giving effect to all dilutive common stock equivalents, consisting of common stock options and warrants. Diluted net loss per common share for the three and six months ended June 30, 2015 and 2014 is the same as basic net loss per common share because the common share equivalents were anti-dilutive due to the net loss. The following table sets forth the computation of basic and diluted net loss per common share: Three Months Ended June 30, Six Months Ended June 30, 2015 2014 2015 2014 Net loss (in thousands) $ (1,060 ) $ (1,494 ) $ (2,230 ) $ (3,126 ) Weighted-average share reconciliation: Weighted-average basic shares outstanding 12,700,624 11,173,762 12,699,784 11,043,770 Diluted shares outstanding 12,700,624 11,173,762 12,699,784 11,043,770 Net loss per common share: Basic $ (0.08 ) $ (0.13 ) $ (0.18 ) $ (0.28 ) Diluted $ (0.08 ) $ (0.13 ) $ (0.18 ) $ (0.28 ) Common stock equivalent shares are not included in the computation of diluted loss per share, because the Company has a net loss and the inclusion of such shares would be anti-dilutive due to the net loss. At June 30, 2015 and 2014, the common stock equivalent shares were, as follows: June 30, June 30, 2015 2014 Shares of common stock issuable under equity incentive plans outstanding 3,175,961 2,310,890 Common stock equivalent shares excluded from diluted net loss per share 3,175,961 2,310,890

3. Acquisitions

3. Acquisitions	6 Months Ended
	Jun. 30, 2015
Business Combinations [Abstract]
3. Acquisitions	One Stop Tech Solutions, LLC Acquisition On June 1, 2014, we acquired certain assets from One Stop Tech Solutions, LLC, dba One Stop Voice (OSV), a privately-held provider of IP Telecom and Cloud communications located in Scottsdale, Arizona. The aggregate purchase price of approximately $540,000 consisted of $195,000 of cash paid at closing and 40,521 shares of our common stock with an estimated fair value of approximately $134,000. The fair value of the issuance of common stock issued as consideration for OSV was determined on the basis of the closing market price of the Company’s common stock on the acquisition date. In addition, the Company recorded as part of the purchase price approximately $211,000 of contingent consideration it estimates will be paid during the earn-out period. The contingent consideration of $211,000 will be paid out in cash and stock at a split of 60% cash and 40% stock. The Company’s consolidated financial statements include the results of operations of OSV from the date of acquisition. The historical results of operations of OSV were not significant to the Company’s consolidated results of operations for the periods presented. The total purchase consideration was allocated to the assets acquired and liabilities assumed at their estimated fair values as of the date of acquisition, as determined by management based on a valuation performed by an independent third party valuation firm. The excess of the purchase price over the amounts allocated to assets acquired and liabilities assumed has been recorded as goodwill. The goodwill arising from the acquisitions discussed above consists largely of the synergies and economies of scale we hope to achieve from combining the acquired assets and operations with our historical operations. In accordance with current accounting standards, goodwill associated with the OSV acquisition will not be amortized and will be tested for impairment at least annually. The following table presents the purchase price allocation of OSV (in thousands): Consideration (including estimated unpaid contingent consideration): Cash $ 195 Common stock 134 Contingent consideration 211 Total consideration $ 540 Recognized amounts of identifiable assets acquired and liabilities assumed: Identifiable intangible assets $ 353 Commission liability (10 ) Total identifiable net assets 343 Goodwill 197 Total consideration $ 540 The following were the identified intangible assets acquired and the respective estimated periods over which such assets will be amortized (in thousands): Intangible Assets: Amount Weighted Average useful life (in years) Customer relationships $ 335 7 Technology 18 3 Total intangible assets $ 353 In determining the purchase price allocation, the Company considered, among other factors, its intention to use the acquired assets and the historical and estimated future demand for One Stop Voice services. The estimated fair value of customer relationships was based upon the income approach. The income approach relies on an estimation of the present value of the future monetary benefits expected to flow to the owner of an asset during its remaining economic life. This approach requires a projection of the cash flow that the asset is expected to generate in the future. The projected cash flow is discounted to its present value using a rate of return, or discount rate that accounts for the time value of money and the degree of risk inherent in the asset. The income approach may take the form of a “relief from royalty” methodology, a cost savings methodology, a “with and without” methodology, or excess earnings methodology, depending on the specific asset under consideration. The relief from royalty approach was used to determine the fair value of the technology license acquired from One Stop Voice. The relief from royalty approach estimates the value of the intangible asset by quantifying the aggregate expenditures that would be required to replace the intangible asset. The customer relationships were valued using a form of the income approach known as the multi-period excess earnings method. Inherent in the multi-period excess earnings method is the recognition that, in most cases, all of the assets of the business, both tangible and intangible, contribute to the generation of the cash flow of the business and the net cash flows attributable to the subject asset must recognize the support of the other assets which contribute to the realization of the cash flows. This future cash flow was then discounted using an estimated required rate of return for the asset to determine the present value of the future cash flows attributable to the asset. The key assumptions used in valuing the customer relationships acquired are as follows: discount rate of 12.5%, tax rate of 39.3%, contributory asset charges for technology license and tangible assets used to deliver services, assembled workforce, and estimated economic life of 7 years. The total weighted average amortization period for the identified intangible assets acquired from One Stop Voice is 7 years. The goodwill resulting from the One Stop Voice acquisition is not currently deductible for income tax purposes.

4. Trade Receivables net

4. Trade Receivables net	6 Months Ended
	Jun. 30, 2015
Trade Receivables Net
4. Trade Receivables net	Our trade receivables balance consists of traditional trade receivables and residual Extended Payment Term Agreements (EPTAs) sold prior to July 2011. Below is an analysis of the days outstanding of our trade receivables as shown on our balance sheet (in thousands): June 30, December 31, 2015 2014 Trade receivables $ 338 $ 433 Conforming EPTAs 127 192 Non-Conforming EPTAs: 1 - 30 days 17 19 31 - 60 days 6 28 61 - 90 days 2 3 Gross trade receivables 490 675 Less: allowance for doubtful accounts (50 ) (68 ) Trade receivables, net $ 440 $ 607 Current trade receivables, net $ 345 $ 543 Long-term trade receivables, net 95 64 Trade receivables, net $ 440 $ 607 All current and long-term EPTAs in the table above had original contract terms of greater than one year. The Company wrote off $53,000 of EPTAs during the six months ended June 30, 2015 and $158,000 during the year ended December 31, 2014, of which, all had original contract terms of greater than one year.

5. Equipment Financing Receivab

5. Equipment Financing Receivables	6 Months Ended
	Jun. 30, 2015
Equipment Financing Receivables
5. Equipment Financing Receivables	We rent certain hosted telecommunication equipment (IP telephone devices) through leasing contracts that we classify as either operating leases or sale-type leases. Equipment finance receivables arising from the rental of our hosted telecommunication equipment through sales-type leases, were as follows (in thousands): 14 June 30, December 31, 2015 2014 Gross financing receivables $ 1,329 $ 1,610 Less unearned income (779 ) (984 ) Financing receivables, net 550 626 Less: Current portion of finance receivables, net (153 ) (171 ) Finance receivables due after one year $ 397 $ 455 Equipment finance receivables are expected to be collected over the next thirty-six to sixty months.

6. Intangible Assets

6. Intangible Assets	6 Months Ended
	Jun. 30, 2015
Goodwill and Intangible Assets Disclosure [Abstract]
6. Intangible Assets	The net carrying amount of intangible assets is as follows (in thousands): June 30, December 31, 2015 2014 Customer relationships $ 941 $ 941 Technical know-how 60 60 Non-compete 60 60 Developed technology 198 198 Less accumulated amortization Customer relationships (399 ) (316 ) Technical know-how (60 ) (60 ) Non-compete (60 ) (60 ) Developed technology (188 ) (147 ) Total $ 552 $ 676

7. Fair Value Measurements

7. Fair Value Measurements	6 Months Ended
	Jun. 30, 2015
Fair Value Measurements
7. Fair Value Measurements	We have financial instruments as of June 30, 2015 and December 31, 2014 for which the fair value is summarized below (in thousands): June 30, 2015 December 31, 2014 Carrying Value Estimated Fair Value Carrying Value Estimated Fair Value Assets: Trade receivables, net $ 440 $ 440 $ 607 $ 607 Equipment financing receivables 550 550 626 626 Certificate of deposit 251 251 251 251 Liabilities: Acquisition related contingent consideration $ 110 $ 110 $ 211 $ 211 Assets and liabilities for which fair value is recognized in the balance sheet on a recurring basis are summarized below as of June 30, 2015 and December 31, 2014 (in thousands): 15 June 30, Fair value measurement at reporting date Description 2015 Level 1 Level 2 Level 3 Assets: Certificate of deposit $ 251 $ - $ 251 $ - Liabilities: Acquisition related contingent consideration 110 - - 110 Description December 31, 2014 Level 1 Level 2 Level 3 Assets: Certificate of deposit $ 251 $ - $ 251 $ - Liabilities: Acquisition related contingent consideration 211 - - 211 The carrying amount of certificates of deposit approximates fair value, as determined by certificates of deposit with similar terms and conditions. The recurring Level 3 measurement of our contingent consideration liability includes the following significant unobservable inputs at June 30, 2015 and December 31, 2014, respectively (in thousands): Contingent consideration liability Fair Value at June 30, 2015 Valuation technique Unobservable inputs Range Revenue - based payments $110 Discounted cash flow Discount Rate 12.5% Probability of milestone payment 90% Projected year of payments 2015 Contingent consideration liability Fair Value at December 31, 2014 Valuation technique Unobservable inputs Range Revenue - based payments $211 Discounted cash flow Discount Rate 12.5% Probability of milestone payment 90% Projected year of payments 2015 Level 3 instruments are valued based on unobservable inputs that are supported by little or no market activity and reflect the Company’s own assumptions in measuring fair value. Future changes in fair value of the contingent financial milestone consideration, as a result of changes in significant inputs such as the discount rate and estimated probabilities of financial milestone achievements, could have a material effect on the statement of operations and balance sheet in the period of the change. The progression of the Company’s Level 3 instruments fair valued on a recurring basis for the six months ended June 30, 2015 and the year ended December 31, 2014 are shown in the table below (in thousands): Acquisition Related Contingent Consideration Balance at January 1, 2014 $ 51 Change in fair value 3 Cash payments (54 ) Additions 211 Balance at December 31, 2014 $ 211 Cash payments (61 ) Issuance of common stock from contingent consideration (40 ) Balance at June 30, 2015 $ 110

8. Income Taxes

8. Income Taxes	6 Months Ended
	Jun. 30, 2015
Income Taxes
8. Income Taxes	Our effective tax rate for the three and six months ended June 30, 2015 was (0.8)% and (0.8)%, respectively, which resulted in an income tax provision of $8,000 and $18,000, respectively. The tax provision for the six months ended June 30, 2015 was due to state tax payments made with extensions filed. Our effective tax rate for the three and six months ended June 30, 2014 was (0.9)% and (1.5)%, respectively, which resulted in an income tax provision of $13,000 and $47,000, respectively. The tax provision for the six months ended June 30, 2015 was due to state tax payments made with extensions filed. Significant management judgment is required in determining our provision for income taxes and in determining whether deferred tax assets will be realized in full or in part. In assessing the recovery of the deferred tax assets, we considered whether it is more likely than not that some portion or all of our deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income in the periods in which those temporary differences become deductible. We considered the scheduled reversals of future deferred tax assets, projected future taxable income, the suspension of the sale of product and services through the seminar sales channel, and tax planning strategies in making this assessment. As a result, we determined it was more likely than not that the deferred tax assets would not be realized; accordingly, we recorded a full valuation allowance. Subsequent to placing a full valuation allowance on our net deferred tax assets, adjustments impacting our tax rate have been and are expected to continue to be insignificant.

9. Prepaid Expenses and Other

9. Prepaid Expenses and Other	6 Months Ended
	Jun. 30, 2015
Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]
9. Prepaid Expenses and Other	June 30, December 31, 2015 2014 Current prepaid rent $ 322,000 $ 322,000 Long-term prepaid rent 215,000 376,000 Total prepaid rent, net $ 537,000 $ 698,000

10. Accrued Expenses

10. Accrued Expenses	6 Months Ended
	Jun. 30, 2015
Payables and Accruals [Abstract]
10. Accrued Expenses	Accrued expenses consisted of the following (in thousands): June 30, December 31, 2015 2014 Accrued wages and benefits $ 310 $ 345 Accrued accounts payable 155 318 Accrued legal costs - 231 Accrued sales taxes 216 209 Other 327 228 Total accrued expenses $ 1,008 $ 1,331

11. Commitments and Contingenci

11. Commitments and Contingencies	6 Months Ended
	Jun. 30, 2015
Less: Current portion of finance receivables not billed, net
11. Commitments and Contingencies	Operating Leases We lease certain of our equipment and corporate offices under non-cancelable operating lease agreements expiring at various dates through 2016. The operating leases for our Reno, NV and Draper, UT offices contain customary escalation clauses. Rental expense for the three months ended June 30, 2015 and 2014 was approximately $30,000 and $30,000, respectively. Rental expense for the six months ended June 30, 2015 and 2014 was approximately $60,000 and $60,000, respectively. Sale-Leaseback On February 28, 2014, the Company sold and leased back the land, building and furniture associated with the corporate headquarters in Tempe, Arizona to a Company that is owned by the major shareholder and CEO of the Company for $2.0 million in cash. The Company recognized a deferred gain of $281,000 on sale-leaseback, which will be amortized over the initial lease term of 36 months to offset rent expense. The net deferred gain is included in other long-term liabilities in the condensed consolidated balance sheets as of June 30, 2015 and December 31, 2014. The lease agreement called for rent payments for the initial three-year term to be made in advance in the form of 300,000 shares of common stock of Crexendo, Inc. The fair value price per share at the time of the lease was $3.22 per share, resulting in rent expense of $322,000 per year for three years. Prepaid rent included in the condensed consolidated balance sheets as of June 30, 2015 and December 31, 2014, is as follows: June 30, December 31, 2015 2014 Current prepaid rent $ 322,000 $ 322,000 Long-term prepaid rent 215,000 376,000 Total prepaid rent, net $ 537,000 $ 698,000 Rent expense incurred on the sale-leaseback during the three months ended June 30, 2015 and 2014, net of deferred gain amortization of $23,000 and $23,000, respectively, was $57,000 and $57,000, respectively. Rent expense incurred on the sale-leaseback during the six months ended June 30, 2015 and 2014, net of deferred gain amortization of $47,000 and $31,000, respectively, was $114,000 and $76,000, respectively.

12. Segment Information

12. Segment Information	6 Months Ended
	Jun. 30, 2015
Segment Information
12. Segment Information	Management has chosen to organize the Company around differences based on its products and services. Hosted Telecommunications Services segment generates revenue from selling hosted telecommunication services and broadband internet services. Web Services segment generates revenue from website hosting, managing e-commerce or lead generation offerings, websites, search engine optimization/management and online promotional needs for small, medium, and enterprise sized businesses. The Company has two operating segments, which consist of Hosted Telecommunications Services and Web Services. Effective April 1, 2014, the Company changed its reporting segments to reflect changes in how the Chief Operating Decision Maker (CODM) internally measures performance and allocates resources. Segment operating results for the prior year have been revised to conform to current year segment operating results presentation. Segment revenue and income (loss) before income tax provision was as follows (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2015 2014 2015 2014 Revenue: Hosted telecommunications services $ 1,421 $ 963 $ 2,745 $ 1,918 Web services 469 845 997 1,962 Consolidated revenue 1,890 1,808 3,742 3,880 Income/(loss) from operations: Hosted telecommunications services (1,091 ) (1,376 ) (2,441 ) (2,887 ) Web services 6 (187 ) (19 ) (351 ) Total operating loss (1,085 ) (1,563 ) (2,460 ) (3,238 ) Other income, net: Hosted telecommunications services 18 21 39 41 Web services 15 61 209 118 Total other income 33 82 248 159 Income/(loss) before income tax provision Hosted telecommunications services (1,073 ) (1,355 ) (2,402 ) (2,846 ) Web services 21 (126 ) 190 (233 ) Loss before income tax provision $ (1,052 ) $ (1,481 ) $ (2,212 ) $ (3,079 ) Depreciation and amortization was $56,000 and $98,000 for the Hosted Telecommunications Services segment for the three months ended June 30, 2015 and 2014, respectively. Depreciation and amortization was $121,000 and $220,000 for the Hosted Telecommunications Services segment for the six months ended June 30, 2015 and 2014, respectively. Depreciation and amortization was $17,000 and $70,000 for the Web Services segment for the three months ended June 30, 2015 and 2014, respectively. Depreciation and amortization was $39,000 and $174,000 for the Web Services segment for the six months ended June 30, 2015 and 2014, respectively. Interest income was $7,000 and $39,000 for the Web Services segment for the three months ended June 30, 2015 and 2014, respectively. Interest income was $13,000 and $86,000 for the Web Services segment for the six months ended June 30, 2015 and 2014, respectively. Interest expense was $1,000 and $1,000 for the Web Services segment for the three months ended June 30, 2015 and 2014, respectively. Interest expense was $9,000 and $1,000 for the Web Services segment for the six months ended June 30, 2015 and 2014, respectively. Interest expense was $4,000 and $0 for the Hosted Telecommunications Services segment for the three months ended June 30, 2015 and 2014, respectively. Interest expense was $4,000 and $0 for the Hosted Telecommunications Services segment for the six months ended June 30, 2015 and 2014, respectively.

1. Summary of Significant Accou

1. Summary of Significant Accounting Policies (Policies)	6 Months Ended
	Jun. 30, 2015
Summary Of Significant Accounting Policies Policies
Description of Business	Description of Business - The Company has transformed into a start-up company with the inherent risks and uncertainties of funding operations until profitability is achieved. We currently plan to fund our operations during the next twelve months using our cash and cash equivalents of $1,782,000. However, after considering the Company’s historical negative cash flows from operating activities as well as internal forecasts, such amount does not appear adequate to fund our anticipated cash needs for the next twelve months. Accordingly, the Company will be required to obtain additional debt or equity financing such as that available from its CEO to sustain operations. The Company received a commitment from the CEO, and major shareholder, in July 2015 that, if needed, he would provide up to $2,000,000 of financial support to enable the Company to fund its operations through September 30, 2016. As such, the Company believes it will have sufficient funds to sustain its operations during the next twelve months as a result of the sources of funding detailed above.
Basis of Presentation	Basis of Presentation –
Cash and Cash Equivalents	Cash and Cash Equivalents
Restricted Cash	Restricted Cash
Trade Receivables	Trade Receivables
Allowance for Doubtful Accounts	Allowance for Doubtful Accounts – For sales made through EPTA contracts, we record an allowance for doubtful accounts each reporting period based on the Company’s ongoing assessment of collectability. The allowance represents estimated losses resulting from customers’ failure to make required payments. The allowance for doubtful accounts for EPTAs is netted against the current and long-term trade receivables balances. The allowance estimate is based on historical collection experience, specific identification of probable bad debts based on collection efforts, aging of trade receivables, customer payment history, and other known factors, including current economic conditions. We believe that the allowance for doubtful accounts is adequate based on our assessment to date, however, actual collection results may differ materially from our expectations. Because revenue generated from customers financing through EPTAs is deferred and not recognized prior to the collection of cash, adjustments to the allowance for doubtful accounts related to our EPTA contracts increase or decrease deferred revenue. Trade receivables are written off against the allowance when the related customers are no longer making required payments and the trade receivables are determined to be uncollectible, typically 90 days past their original due date. For sales made in our Hosted Telecommunications Services and Web Services segments, the allowance for doubtful accounts reflects our best estimate of probable losses inherent in the accounts receivable balance. We determine the allowance based on known troubled accounts, historical experience, and other currently available evidence.
Interest Income	Interest Income
Inventory	Inventory
Certificate of Deposit	Certificate of Deposit
Property and Equipment	Property and Equipment Computer and office equipment 2 to 5 years Computer software 3 years Furniture and fixtures 4 years Leasehold improvements 2 to 5 years Maintenance and repairs are expensed as incurred. The cost and accumulated depreciation of property and equipment sold or otherwise retired are removed from the accounts and any related gain or loss on disposition is reflected in net income or loss for the year.
Goodwill	Goodwill
Intangible Assets	Intangible Assets We periodically review the estimated useful lives of our intangible assets and review these assets for impairment whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. The determination of impairment is based on estimates of future undiscounted cash flows. If an intangible asset is considered to be impaired, the amount of the impairment will be equal to the excess of the carrying value over the fair value of the asset.
Use of Estimates	Use of Estimates -
Revenue Recognition	Revenue Recognition - Software licenses and DVD training courses sold under EPTAs are recognized as revenue upon receipt of cash from customers and not at the time of sale. Accounting standards require revenue to be deferred until customer payments are received if collection of the original principal balance is not probable. We enter into agreements where revenue is derived from multiple deliverables including any mix of products and/or services. For these arrangements, we determine whether the delivered item(s) has value to the customer on a stand-alone basis, and in the event the arrangement includes a general right of return relative to the delivered item(s), whether the delivery or performance of the undelivered item(s) is considered probable and substantially in our control. If these criteria are met, the arrangement consideration is allocated to the separate units of accounting based on each unit’s relative selling price. If these criteria are not met, the arrangement is accounted for as a single unit of accounting which would result in revenue being recognized ratably over the contract term or deferred until the earlier of when such criteria are met or when the last undelivered element is delivered. The amount of product and services revenue recognized for arrangements with multiple deliverables is impacted by the allocation of arrangement consideration to the deliverables in the arrangement based on the relative selling prices. In determining our selling prices, we apply the selling price hierarchy using vendor specific objective evidence (“VSOE”) when available, third-party evidence of selling price (“TPE”) if VSOE does not exist, and best estimated selling price (“BESP”) if neither VSOE nor TPE is available. VSOE of fair value for elements of an arrangement is based upon the normal pricing and discounting practices for a deliverable when sold separately. In determining VSOE, we require that a substantial majority of the selling prices fall within a reasonably narrow pricing range, generally evidenced by a substantial majority of such historical stand-alone transactions falling within a reasonably narrow range of the median rate. In addition, we consider major service groups, geographies, customer classifications, and other variables in determining VSOE. We are typically not able to determine TPE for our products or services. TPE is determined based on competitor prices for similar deliverables when sold separately. Generally, our offerings contain a significant level of differentiation such that the comparable pricing of products with similar functionality is difficult to obtain. Furthermore, we are unable to reliably determine what similar competitor products’ selling prices are on a stand-alone basis. When we are unable to establish the selling price using VSOE or TPE, we use BESP in our allocation of arrangement consideration. The objective of BESP is to determine the price at which we would transact a sale if the product or service were sold on a stand-alone basis. We determine BESP for a product or service by considering multiple factors including, but not limited to, cost of products, gross margin objectives, pricing practices, geographies, customer classes and distribution channels. We recognize revenue for delivered elements only when we determine there are no uncertainties regarding customer acceptance. Changes in the allocation of the sales price between delivered and undelivered elements can impact the timing of revenue recognized but does not change the total revenue recognized on any agreement.
Professional Services Revenue	Professional Services Revenue
Telecommunications Services Hosting and Web Hosting Revenue	Telecommunications Services Hosting and Web Hosting Revenue - Fees collected for hosting revenue are recognized ratably as services are provided. Customers are billed for these services on a monthly or annual basis at the customer’s option. We recognize revenue ratably over the applicable service period. When we provide a free trial period, we do not begin to recognize subscription revenue until the trial period has ended and the customer has been billed for the services.
Equipment Sales and Financing Revenue	Equipment Sales and Financing Revenue - Fees generated from renting our hosted telecommunication equipment (IP or cloud telephone devices) through leasing contracts are recognized as revenue based on whether the lease qualifies as an operating lease or sales-type lease. The two primary accounting provisions which we use to classify transactions as sales-type or operating leases are: 1) lease term to determine if it is equal to or greater than 75% of the economic life of the equipment and 2) the present value of the minimum lease payments to determine if they are equal to or greater than 90% of the fair market value of the equipment at the inception of the lease. The economic life of most of our products is estimated to be three years, since this represents the most frequent contractual lease term for our products, and there is no residual value for used equipment. Residual values, if any, are established at the lease inception using estimates of fair value at the end of the lease term. The vast majority of our leases that qualify as sales-type leases are non-cancelable and include cancellation penalties approximately equal to the full value of the lease receivables. Leases that do not meet the criteria for sales-type lease accounting are accounted for as operating leases. Revenue from sales-type leases is recognized upon installation and the interest portion is deferred and recognized as earned. Revenue from operating leases in recognized ratably over the applicable service period.
Commission Revenue	Commission Revenue -
Cost of Revenue	Cost of Revenue
Prepaid Sales Commissions	Prepaid Sales Commissions
Research and Development	Research and Development
Fair Value Measurements	Fair Value Measurements Level 1 Level 2 ● Quoted prices for similar assets or liabilities in active markets; ● Quoted prices for identical or similar assets in non-active markets; ● Inputs other than quoted prices that are observable for the asset or liability; and ● Inputs that are derived principally from or corroborated by other observable market data. Level 3
Income Taxes	Income Taxes - Interest and penalties associated with income taxes are classified as income tax expense in the consolidated statements of operations. We do not intend to indefinitely reinvest the undistributed earnings of our United Kingdom subsidiary, therefore, we have provided for U.S. deferred income taxes on such undistributed foreign earnings. All other foreign subsidiaries are considered disregarded foreign entities for US tax purposes.
Stock-Based Compensation	Stock-Based Compensation -
Comprehensive Income (Loss)	Comprehensive Loss
Operating Segments	Operating Segments
Significant Customers	Significant Customers – No customer accounted for 10% or more of our total revenue or total accounts receivable as of and for the three and six months ended June 30, 2015 and 2014.
Recently Issued Accounting Pronouncements	Recently Adopted Accounting Guidance - In June 2014, the FASB issued ASU No. 2014-12, Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period. This ASU requires that a performance target that affects vesting and could be achieved after the requisite service period be treated as a performance condition. A reporting entity should apply existing guidance in ASC 718, Compensation-Stock Compensation, as it relates to such awards. ASU 2014-12 is effective for us in our first quarter of fiscal 2017 with early adoption permitted using either of two methods: (i) prospective to all awards granted or modified after the effective date; or (ii) retrospective to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter, with the cumulative effect of applying ASU 2014-12 as an adjustment to the opening retained earnings balance as of the beginning of the earliest annual period presented in the financial statements. The Company is currently assessing the impact of this pronouncement to its consolidated financial statements. In August 2014, the FASB issued ASU 2014-15. This ASU requires management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. Specifically, the ASU (1) provides a definition of the term substantial doubt, (2) requires an evaluation every reporting period including interim periods, (3) provides principles for considering the mitigating effect of management’s plans, (4) requires certain disclosures when substantial doubt is alleviated as a result of consideration of management’s plans, (5) requires an express statement and other disclosures when substantial doubt is not alleviated, and (6) requires an assessment for a period of one year after the date that the financial statements are issued (or available to be issued). This standard is effective for the fiscal years ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted. The Company is currently evaluating the new guidance to determine the impact it will have on its consolidated financial statements.

1. Significant Accounting Pol20

1. Significant Accounting Policies (Tables)	6 Months Ended
	Jun. 30, 2015
Significant Accounting Policies Tables
Property and Equipment	Computer and office equipment 2 to 5 years Computer software 3 years Furniture and fixtures 4 years Leasehold improvements 2 to 5 years

2. Net Loss Per Common Share (T

2. Net Loss Per Common Share (Tables)	6 Months Ended
	Jun. 30, 2015
Net Loss Per Common Share
Basic and diluted net income (loss) per common share	Three Months Ended June 30, Six Months Ended June 30, 2015 2014 2015 2014 Net loss (in thousands) $ (1,060 ) $ (1,494 ) $ (2,230 ) $ (3,126 ) Weighted-average share reconciliation: Weighted-average basic shares outstanding 12,700,624 11,173,762 12,699,784 11,043,770 Diluted shares outstanding 12,700,624 11,173,762 12,699,784 11,043,770 Net loss per common share: Basic $ (0.08 ) $ (0.13 ) $ (0.18 ) $ (0.28 ) Diluted $ (0.08 ) $ (0.13 ) $ (0.18 ) $ (0.28 )
Antidilutive securities excluded from earnings	June 30, June 30, 2015 2014 Shares of common stock issuable under equity incentive plans outstanding 3,175,961 2,310,890 Common stock equivalent shares excluded from diluted net loss per share 3,175,961 2,310,890

3. Acquisitions (Tables)

3. Acquisitions (Tables)	6 Months Ended
	Jun. 30, 2015
Business Combinations [Abstract]
Purchase price allocation	Consideration (including estimated unpaid contingent consideration): Cash $ 195 Common stock 134 Contingent consideration 211 Total consideration $ 540 Recognized amounts of identifiable assets acquired and liabilities assumed: Identifiable intangible assets $ 353 Commission liability (10 ) Total identifiable net assets 343 Goodwill 197 Total consideration $ 540
Intangible assets acquired	Intangible Assets: Amount Weighted Average useful life (in years) Customer relationships $ 335 7 Technology 18 3 Total intangible assets $ 353

4. Trade Receivables, net (Tabl

4. Trade Receivables, net (Tables)	6 Months Ended
	Jun. 30, 2015
Trade Receivables Net Tables
Trade Receivables, net	June 30, December 31, 2015 2014 Trade receivables $ 338 $ 433 Conforming EPTAs 127 192 Non-Conforming EPTAs: 1 - 30 days 17 19 31 - 60 days 6 28 61 - 90 days 2 3 Gross trade receivables 490 675 Less: allowance for doubtful accounts (50 ) (68 ) Trade receivables, net $ 440 $ 607 Current trade receivables, net $ 345 $ 543 Long-term trade receivables, net 95 64 Trade receivables, net $ 440 $ 607

5. Equipment Financing Receiv24

5. Equipment Financing Receivables (Tables)	6 Months Ended
	Jun. 30, 2015
Equipment Financing Receivables Tables
Equipment Financing Receivables	June 30, December 31, 2015 2014 Gross financing receivables $ 1,329 $ 1,610 Less unearned income (779 ) (984 ) Financing receivables, net 550 626 Less: Current portion of finance receivables, net (153 ) (171 ) Finance receivables due after one year $ 397 $ 455

6. Intangible Assets (Tables)

6. Intangible Assets (Tables)	6 Months Ended
	Jun. 30, 2015
Goodwill and Intangible Assets Disclosure [Abstract]
Intangible Assets	June 30, December 31, 2015 2014 Customer relationships $ 941 $ 941 Technical know-how 60 60 Non-compete 60 60 Developed technology 198 198 Less accumulated amortization Customer relationships (399 ) (316 ) Technical know-how (60 ) (60 ) Non-compete (60 ) (60 ) Developed technology (188 ) (147 ) Total $ 552 $ 676

7. Fair Value Measurements (Tab

7. Fair Value Measurements (Tables)	6 Months Ended
	Jun. 30, 2015
Fair Value Measurements Tables
Financial instruments	June 30, 2015 December 31, 2014 Carrying Value Estimated Fair Value Carrying Value Estimated Fair Value Assets: Trade receivables, net $ 440 $ 440 $ 607 $ 607 Equipment financing receivables 550 550 626 626 Certificate of deposit 251 251 251 251 Liabilities: Acquisition related contingent consideration $ 110 $ 110 $ 211 $ 211
Assets for which fair value is disclosed	June 30, Fair value measurement at reporting date Description 2015 Level 1 Level 2 Level 3 Assets: Certificate of deposit $ 251 $ - $ 251 $ - Liabilities: Acquisition related contingent consideration 110 - - 110 Description December 31, 2014 Level 1 Level 2 Level 3 Assets: Certificate of deposit $ 251 $ - $ 251 $ - Liabilities: Acquisition related contingent consideration 211 - - 211
Fair value measurement for the contingent consideration based on significant inputs	Contingent consideration liability Fair Value at June 30, 2015 Valuation technique Unobservable inputs Range Revenue - based payments $110 Discounted cash flow Discount Rate 12.5% Probability of milestone payment 90% Projected year of payments 2015 Contingent consideration liability Fair Value at December 31, 2014 Valuation technique Unobservable inputs Range Revenue - based payments $211 Discounted cash flow Discount Rate 12.5% Probability of milestone payment 90% Projected year of payments 2015
Fair value for level 3	Acquisition Related Contingent Consideration Balance at January 1, 2014 $ 51 Change in fair value 3 Cash payments (54 ) Additions 211 Balance at December 31, 2014 $ 211 Cash payments (61 ) Issuance of common stock from contingent consideration (40 ) Balance at June 30, 2015 $ 110

9. Prepaid Expenses and Other (

9. Prepaid Expenses and Other (Tables)	6 Months Ended
	Jun. 30, 2015
Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]
Prepaid Expenses and Other	June 30, December 31, 2015 2014 Current prepaid rent $ 322 $ 322 Prepaid commissions 394 308 Other 478 402 Total current prepaids $ 1,194 $ 1,032 Long-term prepaid rent 215 376 Total prepaid and other $ 1,409 $ 1,408

10. Accrued Expenses (Tables)

10. Accrued Expenses (Tables)	6 Months Ended
	Jun. 30, 2015
Payables and Accruals [Abstract]
Accrued Expenses	June 30, December 31, 2015 2014 Accrued wages and benefits $ 310 $ 345 Accrued accounts payable 155 318 Accrued legal costs - 231 Accrued sales taxes 216 209 Other 327 228 Total accrued expenses $ 1,008 $ 1,331

11. Commitments and Contingen29

11. Commitments and Contingencies (Tables)	6 Months Ended
	Jun. 30, 2015
Commitments And Contingencies Tables
Summary of Prepaid rent	June 30, December 31, 2015 2014 Current prepaid rent $ 322,000 $ 322,000 Long-term prepaid rent 215,000 376,000 Total prepaid rent, net $ 537,000 $ 698,000

12. Segments (Tables)

12. Segments (Tables)	6 Months Ended
	Jun. 30, 2015
Notes to Financial Statements
Information on reportable segments and reconciliation to condensed consolidated net (loss) income	Three Months Ended June 30, Six Months Ended June 30, 2015 2014 2015 2014 Revenue: Hosted telecommunications services $ 1,421 $ 963 $ 2,745 $ 1,918 Web services 469 845 997 1,962 Consolidated revenue 1,890 1,808 3,742 3,880 Income/(loss) from operations: Hosted telecommunications services (1,091 ) (1,376 ) (2,441 ) (2,887 ) Web services 6 (187 ) (19 ) (351 ) Total operating loss (1,085 ) (1,563 ) (2,460 ) (3,238 ) Other income, net: Hosted telecommunications services 18 21 39 41 Web services 15 61 209 118 Total other income 33 82 248 159 Income/(loss) before income tax provision Hosted telecommunications services (1,073 ) (1,355 ) (2,402 ) (2,846 ) Web services 21 (126 ) 190 (233 ) Loss before income tax provision $ (1,052 ) $ (1,481 ) $ (2,212 ) $ (3,079 )

1. Significant Accounting Pol31

1. Significant Accounting Policies (Details)	6 Months Ended
	Jun. 30, 2015
Computer and office equipment | Minimum
Depreciable lives	2 years
Computer and office equipment | Maximum [Member]
Depreciable lives	5 years
Computer software
Depreciable lives	3 years
Furniture and fixtures
Depreciable lives	4 years
Leasehold improvements | Minimum
Depreciable lives	2 years
Leasehold improvements | Maximum [Member]
Depreciable lives	5 years

1. Significant Accounting Pol32

1. Significant Accounting Policies (Details Narrative) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014	Dec. 31, 2014
Significant Accounting Policies Details Narrative
Depreciation expense included in general and administrative expense	$ 15	$ 112	$ 36	$ 289
Interest Income	7	37	13	85
Amortization expense included in general and administrative expense	58	$ 56	124	$ 104
Prepaid sales commissions	$ 394		$ 394		$ 308

2. Net Loss Per Common Share (D

2. Net Loss Per Common Share (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
Net Loss Per Common Share Details
Net loss (in thousands)	$ (1,060)	$ (1,494)	$ (2,230)	$ (3,126)
Weighted-average share reconciliation:
Weighted-average basic shares outstanding	12,700,624	11,173,762	12,699,784	11,043,770
Diluted shares outstanding	12,700,624	11,173,762	12,699,784	11,043,770
Net loss per common share:
Basic	$ (0.08)	$ (0.13)	$ (0.18)	$ (0.28)
Diluted	$ (0.08)	$ (0.13)	$ (0.18)	$ (0.28)

2. Net Loss Per Common Share 34

2. Net Loss Per Common Share (Details 1) - shares	6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014
Securities excluded from earnings	3,175,961	2,310,890
Equity incentive plans
Securities excluded from earnings	3,175,961	2,310,890

3. Acquisitions (Details)

3. Acquisitions (Details) - Jun. 30, 2015 - One Stop Voice Acquisition - USD ($) $ in Thousands	Total
Recognized amounts of identifiable assets acquired and liabilities assumed:
Identifiable intangible assets	$ 353
Commission liability	(10)
Total identifiable net assets	343
Goodwill	197
Total recognized amounts of identifiable assets acquired and liabilities assumed	540
Customer Relationships [Member]
Consideration (including estimated unpaid contingent consideration):
Cash	195
Common Stock	134
Contingent consideration	211
Total Consideration	$ 540

3. Acquisitions (Details1)

3. Acquisitions (Details1) - 6 months ended Jun. 30, 2015 - One Stop Voice Acquisition - USD ($) $ in Thousands	Total
Identified intangible assets acquired	$ 353
Customer Relationships [Member]
Identified intangible assets acquired	$ 335
Weighted Average useful life (In years)	7 years
Technology [Member]
Identified intangible assets acquired	$ 18
Weighted Average useful life (In years)	3 years

4. Trade Receivables, net (Deta

4. Trade Receivables, net (Details) - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014
Valuation and Qualifying Accounts Disclosure [Line Items]
Trade receivables	$ 338	$ 433
Conforming EPTAs	127	192
Gross trade receivables	490	675
Less allowance for doubtful accounts	(50)	(68)
Trade receivables, net	440	607
Current trade receivables, net	345	543
Long-term trade receivables, net	95	64
Trade receivables, net	440	607
1 - 30 Days
Valuation and Qualifying Accounts Disclosure [Line Items]
Non-EPTA trade receivables	17	19
31 - 60 Days
Valuation and Qualifying Accounts Disclosure [Line Items]
Non-EPTA trade receivables	6
31 - 60 Days
Valuation and Qualifying Accounts Disclosure [Line Items]
Non-EPTA trade receivables		28
61 To 90 Days
Valuation and Qualifying Accounts Disclosure [Line Items]
Non-EPTA trade receivables	$ 2	$ 3

4. Trade Receivables, net (De38

4. Trade Receivables, net (Details Narrative) - USD ($) $ in Thousands	6 Months Ended	12 Months Ended
	Jun. 30, 2015	Dec. 31, 2014
Trade Receivables Net Details Narrative
Write off	$ 53	$ 158

5. Equipment Financing Receiv39

5. Equipment Financing Receivables (Details) - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014
Equipment Financing Receivables Details
Gross financing receivables	$ 1,329	$ 1,610
Less unearned income	(779)	(984)
Financing receivables, net	550	626
Less: Current portion of finance receivables, net	(153)	(171)
Finance receivables due after one year	$ 397	$ 455

6. Intangible Assets (Details)

6. Intangible Assets (Details) - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014
Carrying amount of intangible, Net	$ 552	$ 676
Customer Relationships [Member]
Carrying amount of intangible, Gross	941	941
Less accumulated amortization	(399)	(316)
Carrying amount of intangible, Net	542	625
Technical Know How [Member]
Carrying amount of intangible, Gross	60	60
Less accumulated amortization	(60)	(60)
Carrying amount of intangible, Net	0	0
Non Compete [Member]
Carrying amount of intangible, Gross	60	60
Less accumulated amortization	(60)	(60)
Carrying amount of intangible, Net	0	0
Developed technology
Carrying amount of intangible, Gross	198	198
Less accumulated amortization	(188)	(147)
Carrying amount of intangible, Net	$ 10	$ 51

7. Fair Value Measurements (Det

7. Fair Value Measurements (Details) - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014	Dec. 31, 2013
Assets:
Certificate of deposit	$ 251	$ 251
Liabilities:
Acquisition related contingent consideration	110	211	$ 51
Carrying Value [Member]
Assets:
Trade receivables, net	440	607
Equipment financing receivable	550	626
Certificate of deposit	251	251
Liabilities:
Acquisition related contingent consideration	110	211
Estimated Fair Value [Member]
Assets:
Trade receivables, net	440	607
Equipment financing receivable	550	626
Certificate of deposit	251	251
Liabilities:
Acquisition related contingent consideration	$ 110	$ 211

7. Fair Value Measurements (D42

7. Fair Value Measurements (Details 1) - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014	Dec. 31, 2013
Assets:
Certificate of deposit	$ 251	$ 251
Liabilities:
Acquisition related contingent consideration	110	211	$ 51
Level 1 Member
Assets:
Certificate of deposit	0	0
Liabilities:
Acquisition related contingent consideration	0	0
Level 2 Member
Assets:
Certificate of deposit	251	251
Liabilities:
Acquisition related contingent consideration	0	0
Level 3 Member
Assets:
Certificate of deposit	0	0
Liabilities:
Acquisition related contingent consideration	$ 110	$ 211

7. Fair Value Measurements (D43

7. Fair Value Measurements (Details 2) - USD ($) $ in Thousands	6 Months Ended	12 Months Ended
	Jun. 30, 2015	Dec. 31, 2014
Contingent consideration liability	$ (61)	$ (54)
Level 3 Member
Contingent consideration liability	$ 110	$ 211
Valuation technique	Discounted cash flow	Discounted cash flow
Unobservable inputs	Discount Rate 12.5% Probability of milestone payment 90% Projected year of payments 2015	Discount Rate 12.5% Probability of milestone payment 90% Projected year of payments 2015

7. Fair Value Measurements (D44

7. Fair Value Measurements (Details 3) - USD ($) $ in Thousands	6 Months Ended	12 Months Ended
	Jun. 30, 2015	Dec. 31, 2014
Fair Value Measurements Tables
Acquistion Related Contingent Consideration at beginning	$ 211	$ 51
Cash payments	(61)	(54)
Issuance of common stock from contingent consideration	(40)
Change in fair value		3
Additions		211
Acquistion Related Contingent Consideration at end	$ 110	$ 211

8. Income Taxes (Details Narrat

8. Income Taxes (Details Narrative) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
Income Taxes Details Narrative
Effective tax rate	0.80%	0.90%	0.80%	1.50%
Income tax (provision) benefit	$ 8	$ 13	$ 18	$ 47

9. Prepaid Expenses and Other46

9. Prepaid Expenses and Other (Details) - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014
Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]
Current prepaid rent	$ 322	$ 322
Prepaid commissions	394	308
Other	478	402
Total current prepaids	1,194	1,032
Long-term prepaid rent	215	376
Total prepaid and other	$ 1,409	$ 1,408

10. Accrued Expenses (Details)

10. Accrued Expenses (Details) - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014
Payables and Accruals [Abstract]
Accrued wages and benefits	$ 310	$ 345
Accrued accounts payable	155	318
Accrued legal costs	0	231
Accrued sales taxes	216	209
Other	327	228
Total accrued expenses	$ 1,008	$ 1,331

11. Commitments and Contingen48

11. Commitments and Contingencies (Details) - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014
Commitments And Contingencies Tables
Prepaid rent, current	$ 322	$ 322
Long-term prepaid rent	215	376
Total prepaid rent, net	$ 537	$ 698

11. Commitments and Contingen49

11. Commitments and Contingencies (Details Narrative) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
Liabilities relating to legal proceedings
Rent expense	$ 30	$ 30	$ 60	$ 60

12. Segment Information (Detail

12. Segment Information (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
Segment Information
Revenue	$ 1,890	$ 1,808	$ 3,742	$ 3,880
Loss from Operations	(1,085)	(1,563)	(2,460)	(3,238)
Other Income, net	33	82	248	159
Loss before income tax provision	(1,052)	(1,481)	(2,212)	(3,079)
Hosted Telecommunications Services
Segment Information
Revenue	1,421	963	2,745	1,918
Loss from Operations	(1,091)	(1,376)	(2,441)	(2,887)
Other Income, net	18	21	39	41
Loss before income tax provision	(1,073)	(1,355)	(2,402)	(2,846)
Web Services
Segment Information
Revenue	469	845	997	1,962
Loss from Operations	6	(187)	(19)	(351)
Other Income, net	15	61	209	118
Loss before income tax provision	$ 21	$ (126)	$ 190	$ (233)