Annual Report for Fiscal Year Ending 09-30, 2025 (Form 10-K)

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

This section contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of a variety of factors and risks, including the impact of any weakness in the U.S. and international economies on our business, our inability to manage our future growth effectively or profitably, fluctuations in our revenue and quarterly results, our license renewal rate, the impact of competition and our ability to maintain margins or market share, the limited market for our common stock, the ability to maintain our listing on the Nasdaq Capital Market, the volatility of the market price of our common stock, the ability to raise capital, the performance of our products, our ability to respond to rapidly evolving technology and customer requirements, our ability to protect our proprietary technology, the security of our software and response to cyber security risks, our ability to meet our financial obligations and commitments, our dependence on our management team and key personnel, our ability to hire and retain future key personnel, our ability to maintain an effective system of internal controls, or our ability to respond to government regulations. These and other risks are more fully described herein and in our other filings with the Securities and Exchange Commission.

This section should be read in combination with the accompanying audited consolidated financial statements and related notes prepared in accordance with United States generally accepted accounting principles ("GAAP").

Overview

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

All of our software is available through a cloud-based Software as a Service ("SaaS") model, whose flexible architecture provides customers hosting and support. Additionally, Unbound and HawkSearch have the option to be available via a traditional perpetual licensing business model, in which the software can reside on a dedicated infrastructure either on premises at the customer's facility, or manage-hosted by Bridgeline via a cloud-based, dedicated hosted services model.

The product offerings include:

	●	HawkSearch: a site search, recommendation, and personalization software application, built for marketers to enhance, normalize, and enrich an online customer's content search and product discovery experience.
	●	Celebros Search: a commerce-oriented site search product that provides Natural Language Processing with artificial intelligence to present relevant search results based on long-tail keyword searches.
	●	Woorank: a Search Engine Optimization ("SEO") audit tool that generates an instant performance audit of the site's technical, on-page, and off-page SEO.
	●	Unbound: a Digital Experience Platform that includes Web Content Management, eCommerce, Digital Marketing, and Web Analytics.
	●	TruPresence: a web content management and eCommerce platform that supports the needs of multi-unit organizations and franchises.
	●	OrchestraCMS: the only content and digital experience platform built 100% native on Salesforce and helps customers create websites and intranets for their customers, partners, and employees.

Sales and Marketing

We employ a direct sales force, which focuses its efforts on selling to mid-sized and large companies. These companies are generally categorized in the following vertical markets:

	●	Associations and Foundations
	●	Banks and Credit Unions
	●	eCommerce Retailers
	●	Franchises & Enterprises
	●	Health Services and Life Sciences
	●	Industrial Distribution and Wholesale
	●	Manufacturers
	●	Technology

Each of our product offerings goes to market through two main types of partnerships. The first partner category includes platforms such as Adobe, BigCommerce, Optimizely, Sitefinity, Shopify, Unilog and others. Our software often embeds directly into these platforms through connectors and SDK solutions that we develop in concert with each platform. The second category includes web-development agencies which typically have deep relationships with end-customers and have the technical expertise to implement our software solutions according to client needs, platform requirements, and industry standards.

Acquisitions

We continue to evaluate expanding the distribution of our suite of products and interactive development capabilities through acquisitions. We may make additional acquisitions in the foreseeable future. These potential acquisitions will be consistent with our growth strategy by providing us with new geographical distribution opportunities, an expanded customer base, an expanded sales force and an expanded developer force. In addition, integrating acquired companies into our existing operations allows us to consolidate the finance, human resources, legal, marketing, and research and development of the acquired businesses with our own internal resources. This integration may reduce the aggregate of such expenses for the combined businesses and similarly improve operating results.

Customer Information

We currently have over 2,000 active customers. For the years ended September 30, 2025 and 2024, no customers exceeded 10% of our total revenue.

Summary of Results of Operations

Total revenue for the fiscal year ended September 30, 2025 ("fiscal 2025") remained consistent at $15.4 million when compared to fiscal year ended September 30, 2024 ("fiscal 2024"). The loss from operations for fiscal 2025 was $(2.4) million, compared with a loss from operations of $(2.0) million for fiscal 2024. We had a net loss for fiscal 2025 of $(2.5) million, which included a loss of approximately $4 thousand as a result of the change in fair value of certain warrant liabilities, compared with a net loss of $(2.0) million, which included a gain of approximately $0.1 million as a result of the change in fair value of certain warrant liabilities, in fiscal 2024. Basic and diluted net loss per share attributable to common stockholders for fiscal 2025was $(0.25) compared with the equivalent basic and diluted net loss per share attributable to common stockholders of $(0.19) for fiscal 2024.

(in thousands)		Year Ended September 30,
																		$						%
		2025						%		2024						%		Change				Change
Net Revenue
Subscription		$	12,355				80	%		$	12,134				79	%		$	221				2	%
Services			3,028				20	%			3,224				21	%			(196	)			(6	)%
Total net revenue			15,383								15,358								25				0	%
Cost of revenue
Subscription			3,654				30	%			3,392				28	%			262				8	%
Services			1,488				49	%			1,532				48	%			(44	)			(3	)%
Total cost of revenue			5,142				33	%			4,924				32	%			218				4	%
Gross profit			10,241				67	%			10,434				68	%			(193	)			(2	)%
Operating expenses
Sales and marketing			4,474				29	%			3,715				24	%			759				20	%
General and administrative			3,149				20	%			3,282				21	%			(133	)			(4	)%
Research and development			4,024				26	%			4,160				27	%			(136	)			(3	)%
Depreciation and amortization			779				5	%			1,086				7	%			(307	)			(28	)%
Restructuring and acquisition related expenses			242				2	%			210				1	%			32				15	%
Total operating expenses			12,668								12,453								215				2	%
Loss from operations			(2,427	)							(2,019	)							(408	)			20	%
Interest expense and other, net			(126	)							(61	)							(65	)			107	%
Change in fair value of warrant liabilities			(4	)							76								(80	)			(105	)%
Loss before income taxes			(2,557	)							(2,004	)							(553	)			28	%
Provision for benefit from income taxes			(39	)							(43	)							4				(9	)%
Net loss		$	(2,518	)						$	(1,961	)						$	(557	)			28	%
Redemption of Series C Convertible Preferred Stock			(331	)							-								(331	)			(100	)%
Net loss attributable to common shareholders		$	(2,849	)						$	(1,961	)						$	(888	)			45	%
Non-GAAP Measure:
Adjusted EBITDA		$	(931	)						$	(192	)						$	(739	)			385	%

Revenue

Our revenue is derived from two sources: (i) Subscription and (ii) Services.

Subscription

Subscription revenue of $12.4 million in fiscal 2025 increased $0.2 million, or 2%, from $12.1 million in fiscal 2024. Subscription revenue as a percentage of total revenue increased to 80% in fiscal 2025 from 79% in fiscal 2024.

Services

Services revenue is comprised of implementation and retainer-related services. Total revenue from services of $3.0 million in fiscal 2025 decreased (6)% from $3.2 million in fiscal 2024. Services revenue as a percentage of total revenue decreased to 20% in fiscal 2025 from 21% in fiscal 2024.

Overall

Bridgeline's Core products, led by HawkSearch, grew by 16% to $8.9 million in fiscal 2025 (representing 58% of total revenue) from $7.7 million in fiscal 2024 (representing 50% of total revenue). Bridgeline revenue was flat in fiscal 2025 compared to fiscal 2024, with growth in Core products, led by HawkSearch, offset by lower revenue in certain legacy products.

Cost of Revenue

Total cost of revenue for fiscal 2025 of $5.1 million increased $0.2 million, or 4% compared to the prior period.

Cost of Subscription Revenue

Cost of subscription revenue of $3.7 million in fiscal 2025 increased $0.3 million, or 8%, from $3.4 million in fiscal 2024. The increase in cost of subscription revenue in fiscal 2025 compared to fiscal 2024 is primarily due to higher costs to operate our cloud-based hosting model with Amazon Web Services, offset by a decrease in personnel costs. The cost of subscription revenue as a percentage of subscription revenue increased to 30% in fiscal 2025 from 28% in fiscal 2024.

Cost of Services Revenue

Cost of services revenue of $1.5 million in fiscal 2025 and 2024 remained consistent. The cost of total services revenue as a percentage of total services revenue increased slightly to 49% in fiscal 2025 from 48% in fiscal 2024. This increase is primarily due to the overall increase in personnel costs relative to total subscription revenue.

Gross Profit

Gross profit of $10.2 million decreased $(0.2) million, or (2)%, in fiscal 2025 compared to $10.4 million for fiscal 2024. The gross profit margin was 67% and 68% for fiscal 2025 and 2024, respectively.

Operating Expenses

Sales and Marketing Expenses

Sales and marketing expenses of $4.5 million in fiscal 2025 increased $0.8 million, or 20%, from $3.7 million in fiscal 2024. Sales and marketing expense as a percentage of total revenue increased to 29% in fiscal 2025 compared to 24% in fiscal 2024. The increase compared to the prior period is primarily attributable to higher marketing spend on leads and conferences, partially offset by lower personnel costs.

General and Administrative Expenses

General and administrative expenses of $3.1 million in fiscal 2025 decreased $(0.1) million, or (4)%, from $3.3 million in fiscal 2024. General and administrative expense as a percentage of revenue was 20% in fiscal 2025 compared to 21% in fiscal 2024. The decrease compared to the prior period is primarily attributable to lower personnel costs.

Research and Development

Research and development expense of $4.0 million in fiscal 2025 decreased $(0.1) million, or (3)%, from $4.2 million in fiscal 2024. Research and development expense as a percentage of total revenue decreased to 26% in fiscal 2025 compared to 27% for fiscal 2024. These decreases compared to the prior period are primarily attributable to lower personnel costs.

Depreciation and Amortization

Depreciation and amortization expense of $0.8 million in fiscal 2025 decreased by $(0.3) million, or (28)%, from $1.1 million in fiscal 2024.Depreciation and amortization as a percentage of total revenue decreased to 5%in fiscal 2025 compared to 7% for fiscal 2024. The decrease was due to intangible assets that became fully amortized.

Restructuring and Acquisition Related Expenses

Restructuring and acquisition related expenses of $0.2 million in fiscal 2025 remained consistent with 2024. During fiscal 2025 and 2024, expenses incurred were related to severance and merger and acquisition costs.

Loss from Operations

The loss from operations was $(2.4) million for fiscal 2025 compared to a loss from operations of $(2.0) million for fiscal 2024, an increase of $0.4 million or 20%.

Interest expense and other, net

Interest expense and other, net, was $(0.1) million of income in fiscal 2025 and 2024, which primarily consisted of non-recurring, non-operating costs.

Change in fair value of warrant liabilities

The Company recognized a loss related to the change in fair value of warrant liabilities of $4 thousand for fiscal 2025, and a gain related to the change in fair value of warrant liabilities of $0.1 million for fiscal 2024.

Provision for Income Taxes

The provision for (benefit from) income taxes was $ (39)thousand for fiscal 2025 and $(43) thousand for fiscal 2024. Income tax expense consists of estimated liability for federal and state income taxes owed by the Company. Net operating loss ("NOL") carryforwards are estimated to be sufficient to offset any potential taxable income for all periods presented. A valuation allowance is established if it is more likely than not that all or a portion of the deferred tax asset will not be realized. The Company maintains a valuation allowance against its net deferred tax assets. As of September 30, 2025 and 2024, the Company had a valuation allowanceon its net deferred tax assets of $11.7 million and $11.3 million, respectively.

The federal NOL carryforward is approximately $37.4 million as of September 30, 2025 of which $29.0 million is subject to the 20-year carryforward and expires on various dates through 2038. The remaining federal NOL carryforward of $8.4 million is indefinite.

Net operating losses for taxable years beginning after December 31, 2017 carry forward indefinitely. Internal Revenue Code Section 382 places certain limitations on the amount of taxable income that can be offset by NOL carryforwards after a change in control of a loss corporation. Generally, after a change in control, a loss corporation cannot deduct NOL carryforwards in excess of the Section 382 limitation. Due to these "change of ownership" provisions, utilization of NOL carryforwards may be subject to an annual limitation on utilization against taxable income in future periods. The Company has not performed a Section 382 analysis. However, if performed, Section 382 may be found to limit potential future utilization of our NOL carryforwards. The Company also has approximately $51.5 million in state NOLs which expire on various dates through 2045.

Adjusted EBITDA

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

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

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

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

		Year Ended September 30,
		2025				2024
Net loss		$	(2,518	)		$	(1,961	)
Provision for (benefit from) income tax			(39	)			(43	)
Interest expense and other, net			4				61
Change in fair value of warrants			4				(76	)
Amortization of intangible assets			732				982
Depreciation and other amortization			62				130
Restructuring and acquisition related charges			242				210
Stock-based compensation			582				505
Adjusted EBITDA		$	(931	)		$	(192	)

Liquidity and Capital Resources

Cash Flows

Operating Activities

Cash used in operating activities was $(1.1) million during fiscal 2025 compared to $(0.8) million during fiscal 2024. The change in cash used in operating activities compared to the prior period was primarily due to a decrease in net earnings and changes in non-cash items, including changes in fair value of warrant liabilities, and amortization of intangible assets, and changes to accounts receivable, prepaid expenses and other current assets, accounts payable and accrued liabilities, as well as deferred revenue.

Investing Activities

Cash used in investing activities was $(18) thousand during fiscal 2025 compared to $(29) thousand during fiscal 2024. Cash used in investing activities during fiscal 2025 and 2024was related primarily to purchases of property and equipment.

Financing Activities

Cash provided by financing activities was $1.4 million during fiscal 2025 compared with cash used in financing activities of $(0.2) million during fiscal 2024. Cash provided by financing activities during fiscal 2025 was primarily related to proceeds from the issuance of common stock, less cash used for the redemption of Preferred Series C shares and used for payment of long-term debt, and in fiscal 2024, payments of long-term debt was primarily used in financing activities.

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

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

On March 24, 2025, the Company entered into a Securities Purchase Agreement with purchasers, pursuant to which the Company agreed to issue and sell, in a registered direct offering, an aggregate of 1,000,000 shares of the Company's common stock, par value $0.001 per share, at an offering price of $1.50 per share, for aggregate gross proceeds from the offering of approximately $1.5 million before deducting the placement agent fee and related offering expenses (see Note 12). Proceeds after deducting offering expenses was $1.3 million.

On March 25, 2025, the Company separately entered into a form of subscription agreement with certain accredited investors relating to a private placement transaction and sale (the "Private Placement") of 473,979 unregistered shares of the Company's common stock at an offering price of $1.52 per share, for aggregate gross proceeds from the Private Placement of approximately $720 thousand before deducting related offering expenses. Proceeds after deducting offering expenses was $700 thousand.

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

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

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

●

Revenue recognition;

●

Accounts receivable;

●

Accounting for goodwill and other intangible assets;

●

Accounting for business combinations;

●

Accounting for common stock purchase warrants; and

●

Accounting for stock-based compensation.

Revenue Recognition

Overview

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

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

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

1.

Identify the customer contract - A customer contract is generally identified when there is approval and commitment from both the Company and our customer, the rights have been identified, payment terms are identified, the contract has commercial substance and collectability and consideration is probable.

2.

Identify performance obligations that are distinct - A performance obligation is a promise to provide a distinct good or service or a series of distinct goods or services. A good or service that is promised to a customer is distinct if the customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer, and our promise to transfer the good or service to the customer is separately identifiable from other promises in the contract.

3.	Determine the transaction price - The transaction price is the amount of consideration to which we expect to be entitled to in exchange for transferring goods or services to a customer, excluding sales taxes that are collected on behalf of government agencies.

4.

Allocate the transaction price to distinct performance obligations - The transaction price is allocated to each performance obligation based on the relative standalone selling prices ("SSP") of the goods or services being provided to the customer. We determine the SSP of our goods and services based upon the historical average sales prices for each type of software license and professional services sold.

5.

Recognize revenue as the performance obligations are satisfied - Revenue is recognized when or as control of the promised goods or services is transferred to customers. Revenue from SaaS licenses is recognized ratably over the subscription period beginning on the date the license is made available to customers. Most subscription contracts are three-year terms. Customers who license the software on a perpetual basis receive rights to use the software for an indefinite time period and an option to purchase post-customer support ("PCS"). PCS revenue is recognized ratably on a straight-line basis over the period of performance and the perpetual license is recognized upon delivery. We also offer hosting services for those customers who purchase a perpetual license and do not want to run the software in their environment. Revenue from hosting is recognized ratably over the service period, ranging from one to three-year terms. We recognize revenue from professional services as the services are provided.

Customer Payment Terms

Payment terms with customers typically require payment 30 days from invoice date. Payment terms may vary by customer but generally do not exceed 45 days from invoice date. Invoicing for services are either monthly or upon achievement of milestones and payment terms for such billings are within the standard terms described above. Invoices for subscriptions and hosting are typically issued monthly and are generally due in the month of service. Our subscription and hosting agreements provide for refunds when service is interrupted for an extended period of time and are reserved for in the month in which they occur, if necessary.

Our services agreements with customers do not provide for any refunds for services or products and therefore no specific reserve for such is maintained. In the infrequent instances where customers raise a concern over delivered products or services, we have endeavored to remedy the concern and all costs related to such matters have been insignificant in all periods presented.

Warranty

Certain arrangements include a warranty period, which is generally 30 days from the completion of work. In hosting arrangements, we provide warranties of up-time reliability. We continue to monitor the conditions that are subject to the warranties to identify if a warranty claim may arise. If we determine that a warranty claim is probable, then any related cost to satisfy the warranty obligation is estimated and accrued. Warranty claims to date have been immaterial.

Accounts Receivable

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

Accounting for Goodwill and Intangible Assets

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

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

Accounting for Business Combinations

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

Accounting for Common Stock Purchase Warrants

Accounting for Stock-Based Compensation

At September 30, 2025, we maintained two stock-based compensation plans, one of which has expired but still contains vested stock options. The two plans are more fully described in Note 12 - Stockholders' Equity of these consolidated financial statements.

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

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

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

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