What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-11-15 compared with 2021-08-16 · 265 added, 259 removed, 261 unchanged (67% of the section changed)

9 unchanged sentences

should,” “may,” “propose,” and similar expressions (or the negative versions of such words or expressions),

as they relate to us or our management, are intended to identify such forward-looking statements.

These forward-looking statements are

subject to numerous risks and uncertainties that could cause actual results to differ materially from those anticipated, and many of which

are beyond our control.

Factors that could cause actual results to differ materially from those anticipated are set forth under the caption

“Risk Factors” in the Company’s Form 10-K for the year ended December 31, 2020 and Form 10-Q for the quarter ended March

31, 2021, as filed with the Securities and Exchange Commission on March 10, 2021 and May 17, 2021, respectively.

as they relate to us, our management or the Merger, are intended to identify such forward-looking statements.

For example, forward-looking statements include any

statements regarding the strategies, prospects, plans, expectations or objectives of management of Creative Realities or Reflect for

future operations of the combined company, the risk that the conditions to the closing of the proposed Merger are not satisfied, including

the failure to timely or at all obtain approval of the Creative Realities Proposals and Reflect Proposal;

uncertainties as to the timing

of the consummation of the proposed Merger and the ability of each of Creative Realities and Reflect to consummate the proposed Merger;

risks related to Creative Realities’ ability to correctly estimate its operating expenses and expenses associated with the proposed

Merger, including any debt expenses related to any debt financing obtained in advanced of the closing of the proposed Merger;

Realities’ ability to obtaining any financing necessary to pay the $18,666,667 cash portion of the Merger consideration and fund

the $1,333,333 cash portion of the Reflect Retention Plan at the closing of the Merger, including the terms of any debt or equity financing;

risks related to the changes in market price of the Creative Realities shares of common stock;

competitive responses to the proposed

unexpected costs, charges or expenses resulting from the proposed Merger;

the effect of the COVID-19 pandemic and the steps taken

by governments and customers of Creative Realities and Reflect to address the pandemic, including business closures;

potential adverse

reactions or changes to business relationships resulting from the announcement or completion of the proposed Merger;

and legislative,

regulatory, political and economic developments.

The foregoing review of important factors that could cause actual events to differ from

expectations should not be construed as exhaustive and should be read in conjunction with statements that are included herein and elsewhere.

These forward-looking statements are subject to numerous

risks and uncertainties that could cause actual results to differ materially from those anticipated, and many of which are beyond our

Factors that could cause actual results to differ materially from those anticipated are set forth under the caption “Risk

Factors” in the Company’s Form 10-K for the year ended December 31, 2020, Form 10-Q for the quarter ended March 31, 2021,

and preliminary joint proxy statement/prospectus included in the Form S-4 registration statement, as filed with the Securities and Exchange

Commission on March 10, 2021 May 17, 2021, and November 12, 2021 respectively.

Our actual results, performance or achievements

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These activities generate revenue through:

bundled-solution

consulting services, experience design, content development and production, software development, engineering, implementation,

and field services;

bundled-solution sales;

consulting services, experience design, content development and production, software development, engineering,

implementation, and field services;

software license fees;

and maintenance and support services related to our software, managed systems and solutions.

and maintenance and support services related to our software, managed systems

and solutions.

Recent Developments

Entry into Merger Agreement

On November 12, 2021, Creative Realities and Reflect

Systems, Inc., or “Reflect,” entered into an Agreement and Plan of Merger, or the “Merger Agreement,” pursuant

to which a direct, wholly owned subsidiary of Creative Realities, CRI Acquisition Corporation, or “Merger Sub,” will merge

with and into Reflect, with Reflect surviving as a wholly owned subsidiary of Creative Realities, and the surviving company of the merger,

which transaction is referred to herein as the “Merger.”

Reflect provides digital signage solutions, including

software, strategic and media services to a wide range of companies across the retail, financial, hospitality and entertainment, healthcare,

and employee communications industries in North America.

Reflect offers digital signage platforms, including ReflectView, a platform used by companies to power hundreds of thousands of active

digital displays.

its strategic services, Reflect assists its customers with designing, deploying and optimizing their digital signage networks, and through

its media services, Reflect assists customers with monetizing their digital advertising networks.

Subject to the terms and conditions of the Merger Agreement,

upon the closing of the Merger, Reflect stockholders as of the effective time of the Merger collectively will receive from Creative Realities,

in the aggregate the following Merger consideration:

(i) $18,666,667 payable in cash, (ii) 2,333,334 shares of common stock of Creative

Realities (valued based on an issuance price of $2 per share) (the “CREX Shares”), and (iii) supplemental cash payments (the

“Guaranteed Consideration”), if any, payable on or after the three-year anniversary of the effective time of the Merger (subject

to the Extension Option described below, the “Guarantee Date”), in an amount by which the value of the CREX Shares on such

anniversary is less than $6.40 per share, or if certain customers of Reflect collectively achieve over 85,000 billable devices online

at any time on or before December 31, 2022, is less than $7.20 per share (such applicable amount, the “Guaranteed Price”),

multiplied by the amount of CREX Shares held by the Reflect stockholders on the Guarantee Date (subject to the Extension Option described

below), subject to the terms of the Merger Agreement.

Creative Realities may exercise an extension option

(the “Extension Option”) to extend the Guarantee Date from the three-year anniversary of the Closing Date to six (6) months

thereafter if (i) the Extension Threshold Price is greater than or equal to 70% of the Guaranteed Price described above, and (ii) Creative

Realities provides written notice of its election to exercise the Extension Option at least 10 days prior to the three-year anniversary

of the Closing.

The “Extension Threshold Price” means the average closing price per share of Creative Realities Shares as

reported on the Nasdaq Capital Market (or NYSE) in the fifteen (15) consecutive trading day period ending fifteen (15) days prior to the

three-year anniversary of the Closing Date.

If the Extension Threshold Price is less than 80% of the Guaranteed Price, then the Guaranteed

Price will be increased by $1.00 per share.

Under the terms of the Merger Agreement, Creative

Realities will adopt a retention bonus plan for key Reflect employees that will continue their services after the effective time of the

Merger in substantially the form attached as Exhibit C to the Merger Agreement (the “Retention Bonus Plan”), pursuant to

which key members of Reflect’s management team will be eligible to receive an aggregate of $1,333,333 in cash, which will be paid

50% at the closing of the Merger, and subject to continuous employment with Reflect, 25% on the one-year anniversary of the closing of

the Merger and 25% on the two-year anniversary of the closing of the Merger.

The future cash payments due on the one-year and two-year

anniversaries of the closing of the Merger will be deposited into a “rabbi” trust at the closing of the Merger.

Retention Plan also will require Creative Realities to issue Creative Realities Shares having an aggregate value of $666,667 to the plan

participants as follows:

50% of the value of such shares will be issued at the closing of the Merger at the issuance price of $2.00 per

Subject to continuous employment with Reflect, 25% of the value of such shares will be issued on the one-year anniversary of the

closing of the Merger and the remaining 25% of the value of such shares will be issued on the two-year anniversary of the closing of

The shares to be issued on the one and two year anniversaries of the Merger will be determined based on dividing the value

of shares issuable on such date by the trailing 10-day volume weighed average price (VWAP) of the shares as of the such vesting date

as reported on the Nasdaq Capital Market.

The Merger Agreement contains customary closing

Among these conditions, the Merger Agreement requires that the stockholders of Reflect approve the Merger and other related

proposals (the “Reflect Proposals”), and that the shareholders of Creative Realities approve the issuance of the CREX Shares

Consideration, and the terms of the Retention Bonus Plan and other related proposals (the “Creative Realities Proposals”).

The parties intend to seek stockholder approvals of the Creative Realities Proposals and Reflect Proposal via a joint proxy statement/prospectus

on Form S-4 (the “Proxy Statement”) with the Securities Exchange Commission (the “SEC”), which will include audited

annual and unaudited interim historical financial information for the operations comprising the business of Reflect, together with pro

forma financial information, and such other information as required by applicable SEC rules.

The Merger Agreement contains customary representations,

warranties, covenants, escrow and indemnification provisions.

At closing of the Merger, $2.5 million of the cash Merger consideration

will be deposited into a one-year escrow account as the sole remedy to secure the indemnification obligations of Reflect stockholders;

provided that claims related to breaches of certain representations, warranties and covenants will not be limited by the escrow account

and will be limited by the Merger consideration paid to such stockholders.

Losses must exceed $200,000 before Reflect stockholders would

be liable for any indemnification obligations, in which event Reflect stockholders would be responsible for the amount of all losses above

Creative Realities may offset from the Guaranteed Consideration the amount of losses that Creative Realities is finally determined

to be entitled under the indemnification provisions of the Merger Agreement.

An additional $250,000 of the cash Merger consideration

will be deposited into an escrow account to secure any required payments by the Reflect stockholders as part of the post-closing purchase

price adjustments for closing date net working capital set forth in the Merger Agreement.

The Merger Agreement contains certain termination rights

for both Creative Realities and Reflect, including rights to terminate the Merger Agreement in the event of a breach by the other party

(which right includes the right to recover out-of-pocket costs incurred by the non-breaching party) and limited rights permitting Creative

Realities to terminate the Merger Agreement upon the failure to obtain sufficient financing to fund the cash portion of the Merger consideration,

and certain adverse developments in the Reflect’s business.

We expect the merger to close in the first quarter

For a discussion of the factors that may cause Creative

Realities’, Reflect’s and the combined company’s actual results, performance or achievements to differ materially from

any future results, performance or achievements expressed or implied in such forward-looking statements, and for a discussion of risk

associated with the ability of Creative Realities and Reflect to complete the Merger and the effect of the Merger on the business of Creative

Realities, Reflect and the combined company, see “Risk Factors” set forth in the preliminary Proxy Statement filed with the

SEC on November 12, 2021.

Readers are also urged to carefully review and consider the various disclosures we make in amendments to the

Proxy Statement filed with the SEC and that we will mail to our shareholders.

In addition, additional factors that could cause actual

results to differ materially from those expressed in the forward-looking statements are discussed in reports filed with the SEC by Creative

There can be no assurance that the proposed Merger will be completed, or if it is completed, that it will be consummated within

the anticipated time period or that the expected benefits of the proposed Merger will be realized.

COVID-19 Pandemic

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have forced many businesses to temporarily reduce or cease operations to slow the spread of the COVID-19 pandemic.

As a result of the COVID-19 pandemic, we have experienced

As a result of the COVID-19 pandemic, we experienced

rapid and immediate deterioration in our business in each of our key vertical markets.

The elective and forced closures of, and implementation

of social distancing policies on, businesses across the United States has resulted in materially reduced demand for our services by our

customers, as our customers purchase our products and services to engage with their end customers in a physical space through digital

technology, particularly in our theater, sports arena and large entertainment markets.

The reduced demand has resulted in customer orders

being delayed.

These conditions have resulted in downward revisions of our internal forecasts on current and future projected earnings

and cash flows, resulting in a non-cash impairment loss of $10,646 recorded during the first quarter of 2020 and reduced liquidity

as described below.

While we have experienced an intense curtail in

current customer demand, our long-term outlook for the digital signage industry remains strong.

We are seeing the digital signage industry

experiencing continued consolidation, and believe that those companies able to scale and enhance profitability will emerge as the enterprise-level

providers within our industry after the COVID-19 pandemic and consolidations.

of social distancing policies on, businesses across the United States resulted in materially reduced demand and customer budgets for our

services throughout 2020 and into 2021, as our customers purchase our products and services to engage with their end customers in a physical

space through digital technology, particularly in our theater, sports arena and large entertainment markets.

Those conditions resulted

in downward revisions of our internal forecasts on current and future projected earnings and cash flows, resulting in a non-cash impairment

loss of $10,646 recorded during the first quarter of 2020 and reduced liquidity as described below.

While we have experienced an intense curtail in demand,

our long-term outlook for the digital signage industry remains strong and we believe that the COIVD-19 pandemic has accelerated the long-term

adoption of digital solutions.

Semiconductor Chip Shortage

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Although we believe that such shortage

will be alleviated by the end of the calendar year, the Company is unable to confirm how long such delays may exist, the effect such delays

will be alleviated during the first half of 2022, the Company is unable to confirm how long such delays may exist, the effect such delays

and increased demand may have on the cost to procure such digital screens, or the adverse impacts on our financial results.

Safe Space Solutions

On April 28, 2020, we announced the joint launch

of an AI-integrated non-contact temperature inspection kiosk known as the Thermal Mirror with our partner, InReality, LLC (“InReality”),

for use by businesses as COVID-19 related workplace restrictions are reduced or eliminated.

Although we have experience in providing customers

digital integration solutions, our launch of the Thermal Mirror involves the development, marketing and sale of a new product to new customers

involving a joint effort with InReality.

The product also uses hardware and technologies that have not been used with our other customers.

Throughout the course of the remainder of 2020 and thus far through 2021, the Company and InReality have continued to develop incremental

use cases and have launched a suite of Safe Space Solutions products addressing this market, each of which operate consistently with our

primary business model in that they represent a sale of hardware and a SaaS-based subscription license services contract.

During the three

and six months ended June 30, 2021, the Company generated revenue of $419 and $1,438, respectively, from our Safe Space Solutions products

and services (inclusive of the portion of revenue recognized during the three and six months ended June 30, 2021 related to annual contracts

sold in prior periods).

During the three and six months ended June 30, 2020, the Company generated revenue of $529 and $529, respectively,

from of our Safe Space Solutions products and services (inclusive of the portion of revenue recognized during the three and six months

ended June 30, 2020 related to annual contracts sold in prior periods).

Although these products and our launch have been

successful, the Company retains some level of risk related to the ultimate recovery of our initial investment into the inventory acquired

to launch and support these products.

Settlement of Seller Note

On May 13, 2021, the Company and Seller entered

into a settlement agreement wherein neither party admitted liability, and the Company agreed to pay, and Seller agreed to accept, $100

as settlement in full for the outstanding balance of principal and accrued interest under the Amended and Restated Seller Note and a mutual

release of all claims related to the Amended and Restated Seller Note and sale transaction under the Allure Purchase Agreement and all

related agreements.

See Note 8 Loans Payable to the Condensed Consolidated Financial Statements for additional details with respect

to the transaction and related accounting.

Our Sources of Revenue

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of Operations are in thousands, except per-share information.

Three Months Ended June 30, 2021 Compared to Three Months Ended

June 30, 2020

Three Months Ended September 30, 2021 Compared to Three Months Ended

September 30, 2020

The tables presented below compare our results

1 unchanged sentence

For the three months

ended June 30,

ended September 30,

Cost of sales

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General and administrative expenses

Bad debt expense

Depreciation and amortization expense

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Interest expense

Change in fair value of Convertible Loan

Gain on settlement of debt

4 unchanged sentences

Net income/(loss)

Sales decreased by $379, or 10%, during the three months

ended June 30, 2021 as compared to the same period in 2020 primarily driven by a reduction of $305 in hardware sales resulting from limited

supply chain availability of semiconductor chips delaying the delivery of digital displays and media players to the Company.

disruption for digital displays prevented the Company from delivery of hardware and execution of installation activities during the quarter.

As of June 30, 2021, the Company had customer purchase orders for equipment and installation activities in excess of $1,800 which were

delayed as a result of product availability.

The Company expects to experience continued disruptions and delays related to fulfillment

of inventory purchases from vendors throughout the remainder of 2021, which may impact our results for the remainder of 2021.

a full recovery in the timely availability of equipment during the first half of 2022.

During the three months ended June 30, 2021 and

2020, of our Safe Space Solutions products and services (inclusive of the portion of revenue recognized during the three months ended

June 30, 2021 related to annual contracts sold in prior periods), were $419 and $529, respectively.

Gross profit increased $58, or 3% during the three

months ended June 30, 2021 as compared to the same period in 2020 driven by the decrease in sales but offset by an increase in gross profit

Gross profit margin increased to 57.2% in 2021 from 49.7% during the same period in 2020.

The increase in gross profit margin

is the result of a decrease in hardware revenue as a percentage of total revenue, which generates lower gross profit than services revenue.

High gross profit margin from services revenues were driven by headcount reductions in personnel servicing customers as a result of cost

reductions executed throughout 2020.

Sales and Marketing

Sales decreased by $354, or 7%, during the three

months ended September 30, 2021 as compared to the same period in 2020 primarily driven by a reduction of $635 in hardware sales resulting

from limited supply chain availability of semiconductor chips delaying the delivery of digital displays and media players to the Company,

combined with a reduction in Safe Space Solutions hardware in 2021 following wide distribution of the COVID-19 vaccine.

These reductions

were partially offset by an increase in installation activity related to a continued customer rollout of previously purchased hardware.

The supply disruption for digital displays prevented the Company from delivery of hardware and execution of installation activities during

As of September 30, 2021, the Company had customer purchase orders for equipment and installation activities in excess of

$1,200 which were delayed as a result of product availability.

The Company expects to experience continued disruptions and delays related

to fulfillment of inventory purchases from vendors throughout the remainder of 2021, which may impact our results for the remainder of

We expect a full recovery in the timely availability of equipment during the first half of 2022.

During the three months ended September

30, 2021 and 2020, of our Safe Space Solutions products and services (inclusive of the portion of revenue recognized during the three

months ended September 30, 2021 related to annual contracts sold in prior periods), were $182 and $2,067, respectively.

Gross profit decreased $97, or 4% during the three

months ended September 30, 2021 as compared to the same period in 2020 driven by the decrease in sales but offset by an increase in gross

profit margin.

Gross profit margin increased to 49.4% in 2021 from 47.9% during the same period in 2020 as a result of an increase in

managed services as a percentage of total revenue during the period and headcount reductions in personnel servicing customers as a result

of cost reductions executed throughout 2020.

Sales and Marketing Expenses

Sales and marketing expenses generally include

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Sales and marketing expenses decreased by $81, or 20%, in 2021 compared to 2020.

The decrease was driven by $182

of Employee Retention Credits related to the retention and payment of salaries to sales personnel throughout 2020 and the six months ended

June 30, 2021.

The remaining reduction was the result of reduced personnel costs, combined with reduced spend on trade show activity and

related travel costs following the cancellation of several key industry events as a result of the COVID-19 pandemic.

We anticipate our

sales personnel will maintain a reduced level of travel costs as compared to 2019 during the extended COVID-19 pandemic period and utilize

virtual meeting technology more commonly moving forward, but that these costs will increase as compared to 2020 during the second half

Research and Development

The decrease was driven by $50 of

Employee Retention Credits related to the retention and payment of salaries to sales personnel during the period.

The remaining reduction

was the result of reduced commissions and bonuses.

Research and Development Expenses

Research and development expenses generally include

2 unchanged sentences

Research and development decreased by $3, or 1%, in 2021 compared to 2020.

The decrease was

driven by $147 of Employee Retention Credits related to the retention and payment of salaries to sales personnel throughout 2020 and the

three months ended June 30, 2021.

The remaining reduction was the result of reduced personnel costs.

General and Administrative

Total general and administrative expenses decreased

by $294, or 15%, in 2021 compared to 2020.

The decrease was driven by $508 of Employee Retention Credits related to the retention and

payment of salaries to sales personnel throughout 2020 and the six months ended June 30, 2021.

Excluding the consideration of those tax

credits recorded in the period, total general and administrative expenses increased $214, or 11%, during the six months ended June 30,

2021 as compared to the same period in 2020 driven primarily by an increase of $237 in non-cash stock compensation expenses from employee

stock option awards with time and performance-based vesting.

Expenses related to the Company’s allowance for

bad debts decreased by $456, or 90%, in 2021 compared to 2020.

The 2020 increase was the result of recording a reserve of $502 related

to a customer bankruptcy filing during the three months ended June 30, 2020.

The Company ultimately recovered $555 from this customer

Depreciation and Amortization

The decrease was driven

by $49 of Employee Retention Credits related to the retention and payment of salaries to sales personnel throughout 2020 and the three

months ended September 30, 2021, partially offset by increased headcount as we began re-investment into our content management platforms.

General and Administrative Expenses

Total general and administrative expenses were

flat for the three months ended September 30, 2021 as compared to the same period in 2020.

There was a decrease of $186 from Employee

Retention Credits related to the retention and payment of salaries to sales personnel during the period, offset by $95 in expenses related

to one-time deal and transaction expenses and an increase of $83 in non-cash stock compensation expenses from employee stock option awards

with time and performance-based vesting.

Depreciation and Amortization Expenses

Depreciation and amortization expenses decreased

1 unchanged sentence

This decrease was the result of a trade name asset becoming fully amortized during 2020, while

no amortization was recorded during the three months ended June 30, 2021.

no amortization was recorded during the three months ended September 30, 2021.

Interest Expense

in fair value of Convertible Loan

See Note 8 Loans Payable to the Condensed Consolidated

Financial Statements for a discussion of the Company’s debt and related interest expense obligations.

As of June 30, 2021 and 2020, we updated our fair value

analysis of the Convertible Loan, resulting in recognition of a $0 and $551 loss during the three months ended June 30, 2021 and 2020,

respectively.

See Note 8 Loans Payable to the Condensed

Consolidated Financial Statements for a discussion of the Company’s debt and related interest expense obligations.

Gain on Settlement of Debt

On May 13, 2021, the Company and Seller entered into

a settlement agreement wherein neither party admitted liability, and the Company agreed to pay, and Seller agreed to accept, $100 as settlement

in full for the outstanding balance of principal and accrued interest under the Amended and Restated Seller Note and a mutual release

of all claims related to the Amended and Restated Seller Note and sale transaction under the Allure Purchase Agreement and all related

As a result of this settlement, the full principal

amount of the Amended and Restated Seller Note and the accrued interest have been eliminated, resulting in a gain in the Condensed Consolidated

Financial statements of $1,624, representing $1,538 related to the Amended and Restated Seller Note and $86 of related interest thereon,

during the three months ended June 30, 2021

Six Months Ended June 30, 2021 Compared to Six Months Ended June 30,

The tables presented below compare our results of operations

and present the results for each period and the change in those results from one period to another in both dollars and percentage change.

For the six months

ended June 30,

During the three months ended September 30, 2021

the statute of limitations passed related to the remaining liability on a lease abandoned by the Company in 2015, resulting in a gain

Nine Months Ended September 30, 2021 Compared to Nine Months Ended

September 30, 2020

The tables presented below compare our results

of operations and present the results for each period and the change in those results from one period to another in both dollars and percentage

For the Nine Months

Ended September 30,

Cost of sales

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General and administrative expenses

Bad debt expense/(recovery)

Bad debt (recovery) / expense

Depreciation and amortization expense

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Gain on settlement of debt

Loss on disposal of assets

Other income/(expense)

3 unchanged sentences

Net income/(loss)

Sales increased by $921, or 13%, in the six months

ended June 30, 2021 as compared to the same period in 2020 driven by sales of $1,438 during the six months ended June 30, 2021 of our

Safe Space Solutions products and services (inclusive of the portion of revenue recognized during the six months ended June 30, 2021 related

to annual contracts sold in prior periods), which launched in April 2020.

Safe Space Solutions products had no sales in the three months

ended March 31, 2020 and $529 during the three months ended June 30, 2020.

The increase in sales during the period were constrained from

further growth due to limited supply chain availability of semiconductor chips delaying the delivery of digital displays and media players

to the Company.

The supply disruption for digital displays prevented the Company from delivery of hardware and execution of installation

activities during the quarter.

As of June 30, 2021, the Company had customer purchase orders for equipment and installation activities

in excess of $1,800 which were delayed as a result of product availability.

The Company expects to experience continued disruptions and

delays related to fulfillment of inventory purchases from vendors throughout the remainder of 2021, which may impact our results for the

remainder of 2021.

We expect a full recovery in the timely availability of equipment during the first half of 2022.

Sales increased by $567, or 5%, in the nine months

ended September 30, 2021 as compared to the same period in 2020 driven by an increase of $509 in hardware sales as compared to the same

period in 2020, despite a decrease of $1,385 in the sale of our Safe Space Solutions products, which launched in April 2020.

signage sales expanded by $976 in the period despite constraints from further growth due to limited supply chain availability of semiconductor

chips delaying the delivery of digital displays and media players to the Company.

The supply disruption for digital displays prevented

the Company from delivery of hardware and execution of installation activities during the quarter.

As of September 30, 2021, the Company

had customer purchase orders for equipment and installation activities in excess of $1,200 which were delayed as a result of product availability.

The Company expects to experience continued disruptions and delays related to fulfillment of inventory purchases from vendors throughout

the remainder of 2021, which may impact our results for the remainder of 2021.

We expect a full recovery in the timely availability of

equipment during the first half of 2022.

Gross profit increased $588, or 10%, during the

six months ended June 30, 2021 as compared to the same period in 2020, driven by both an increase in sales, which contributed $428 of

incremental gross profit on a constant gross profit margin basis, and an increase in gross profit margin, which contributed $257 of incremental

gross profit.

Gross profit margin increased to 49.6% from 46.5% driven primarily by increased hardware margins of 32.3% in the six months

ended June 30, 2021 as compared to 23.2% for the comparable period in 2020.

The increases in hardware margin in the current year were

driven by increased purchasing power with distributors as our purchases of digital displays have increased, driving a total increase in

hardware revenue of $1,144, or 39%.

nine months ended September 30, 2021 as compared to the same period in 2020, driven by both an increase in sales, which contributed $322

of incremental gross profit on a constant gross profit margin basis, and an increase in gross profit margin, which contributed $266 of

incremental gross profit.

Gross profit margin increased to 49.5% from 47.1% driven primarily by increased hardware margins driven by increased

purchasing power with distributors as our purchases of digital displays have increased.

Sales and Marketing Expenses

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The decrease was driven by $232

of Employee Retention Credits related to the retention and payment of salaries to sales personnel throughout 2020 and the six months ended

June 30, 2021.

The remaining reduction was the result of reduced personnel costs, combined with reduced spend on trade show activity and

related travel costs following the cancellation of several key industry events as a result of the COVID-19 pandemic.

We anticipate our

sales personnel will maintain a reduced level of travel costs as compared to 2019 during the extended COVID-19 pandemic period and utilize

virtual meeting technology more commonly moving forward, but that these costs will increase as compared to 2020 during the second half

Research and Development

of Employee Retention Credits related to the retention and payment of salaries to sales personnel throughout 2020 and the nine months

ended September 30, 2021.

The remaining reduction was the result of reduced personnel costs, partially offset by an increase of $78 on

trade show activity and related travel costs following a return to participation in industry trade shows and events after the elimination

of such costs in 2020 as a result of the COVID-19 pandemic.

Research and Development Expenses

Research and development expenses generally include

4 unchanged sentences

driven by $196 of Employee Retention Credits related to the retention and payment of salaries to sales personnel throughout 2020 and the

six months ended June 30, 2021.

nine months ended September 30, 2021.

The remaining reduction was the result of reduced personnel costs following the reduction of personnel

and salary reductions implemented throughout 2020.

General and Administrative

General and Administrative Expenses

Total general and administrative expenses decreased

1 unchanged sentence

The decrease was driven by $694 of Employee Retention Credits related to the retention and

payment of salaries to sales personnel throughout 2020 and the six months ended June 30, 2021.

Excluding the consideration of those Employee

Retention Credits recorded in the period, total general and administrative expenses decreased $190, or 4%, during the six months ended

June 30, 2021 as compared to the same period in 2020 because of reductions of (a) $335 in personnel costs, including salaries, benefits,

and travel-related expenses, (b) $209 in rent expense following closure, downsizing, or restructuring of four leases during 2020, and

(c) reductions in legal expenses of $152 following settlement of the Amended and Restated Seller Note, partially offset by an increase

in stock compensation amortization expense of $726 related to incremental employee and directors’ awards granted during 2020 which

are being amortized over a nineteen (19) month remaining vesting period based on the grant date fair value calculated using the Black

Scholes method.

Personnel costs were reduced following completion of a reduction-in-force and salary reductions for remaining personnel

in March 2020.

payment of salaries to sales personnel throughout 2020 and the nine months ended September 30, 2021.

Excluding the consideration of those

Employee Retention Credits recorded in the period, total general and administrative expenses decreased $23, or 0%, during the nine months

ended September 30, 2021 as compared to the same period in 2020.

The comparable year-over-year expenses included reductions of (a) $157

in non-ERC-related personnel costs, including salaries, benefits, and travel-related expenses, (b) $280 in rent expense following closure,

downsizing, or restructuring of four leases during 2020, and (c) reductions in legal expenses of $255 following settlement of the Amended

and Restated Seller Note, partially offset by an increase in stock compensation amortization expense of $849 related to incremental employee

and directors’ awards granted during 2020 which are being amortized over a nineteen (19) month remaining vesting period based on

the grant date fair value calculated using the Black Scholes method.

Personnel costs were reduced following completion of a reduction-in-force

and salary reductions for remaining personnel in March 2020.

Expenses related to the Company’s allowance

for bad debts decreased by $1,311, or 155%, for the six months ended June 30, 2021 compared to 2020.

This decrease was primarily driven

by a cash recovery of $555 related to a customer bankruptcy for which the Company previously recorded a reserve during the three months

ended June 30, 2020.

for bad debts decreased by $1,293, or 156%, for the nine months ended September 30, 2021 compared to 2020.

This decrease was primarily

driven by a cash recovery of $555 related to a customer bankruptcy for which the Company previously recorded a reserve during the three

months ended June 30, 2020.

Goodwill impairment

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impairment charge recorded.

Depreciation and Amortization

Depreciation and Amortization Expenses

Depreciation and amortization expenses decreased

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This decrease was the result of a trade name asset becoming fully amortized during 2020, while

no amortization was recorded during the six months ended June 30, 2021.

no amortization was recorded during the nine months ended September 30, 2021.

Interest Expense;

in fair value of Convertible Loan

See Note 8 Loans Payable to the Condensed Consolidated

Financial Statements for a discussion of the Company’s debt and related interest expense obligations.

As of June 30, 2021 and 2020, we updated our fair value

analysis of the Convertible Loan, resulting in recognition of a $0 and $702 loss during the six months ended June 30, 2021 and 2020, respectively.

Change in fair value of Convertible Loan

See Note 8 Loans Payable to the Condensed

Consolidated Financial Statements for a discussion of the Company’s debt and related interest expense obligations.

We updated our fair value analysis of the Convertible

Loan quarterly, resulting in recognition of a $166 gain and a $702 loss during the nine months ended September 30, 2021 and 2020, respectively.

See Note 8 Loans Payable to the Condensed Consolidated Financial Statements for a discussion of the Company’s Convertible

Gain on Settlement of Debt

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during the three months ended June 30, 2021.

During the three months ended September 30, 2021

the statute of limitations passed related to the remaining liability on a lease abandoned by the Company in 2015, resulting in a gain

Summary Unaudited Quarterly Financial Information

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September 30,

Cost of sales

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September 30,

Quarters ended

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The cash flows used in operating activities were

$363 and $2,915 for the six months ended June 30, 2021 2020, respectively.

We produced net income during the six months ended June 30,

2021 of $2,297, which was primarily reduced via addback of the gain on forgiveness of the Company’s PPP Loan in the amount of $1,552

and gain on the settlement of obligations in the amount of $1,624, representing $1,538 related to the Seller Note and $86 of related interest

thereon, during the three months ended June 30, 2021.

($367) and ($4,110) for the nine months ended September 30, 2021 and 2020, respectively.

We produced net income during the nine months

ended September 30, 2021 of $1,954, which was primarily reduced via addback of the gain on forgiveness of the Company’s PPP Loan

in the amount of $1,552 and gain on the settlement of obligations in the amount of $1,624, representing $1,538 related to the Seller Note

and $86 of related interest thereon, partially offset by an addback for depreciation and amortization, including amortization of debt

discount and stock based compensation, of $2,417.

The change in cash flows used in operations year-over-year was driven primarily by the

current year gains on settlement of the Seller Note and forgiveness of the PPP loan, combined with a reduction in prepaid assets.

Investing Activities

Net cash used in investing activities during the

six months ended June 30, 2021 was $204 compared to $408 during the same period in 2020.

The use of cash in both periods represents payments

made for capital assets, primarily related to the capitalization of both internal and external software development.

We currently do not

have any material commitments for capital expenditures as of June 30, 2021;

however, we anticipate an increase in our capital expenditures

of approximately $900 in excess of our historical trends throughout the balance of 2021 to maintain and enhance the software platform

for our customers and to enhance revenue generating activities through the platform.

nine months ended September 30, 2021 was $432 compared to $559 during the same period in 2020.

The use of cash in both periods represents

payments made for capital assets, primarily related to the capitalization of both internal and external software development.

do not have any material commitments for capital expenditures as of September 30, 2021;

however, we anticipate an increase in our capital

expenditures of approximately $430 in excess of our historical trends throughout the balance of 2021 to maintain and enhance the software

platform for our customers and to enhance revenue generating activities through the platform.

Financing Activities

Net cash provided by financing activities during

the six months ended June, 2021 and 2020 were $1,745 and $1,659, respectively.

On February 18, 2021, the Company entered into a securities

purchase agreement with an institutional investor for the issuance and sale of the Company’s common stock.

The net proceeds from

the Offering after paying estimated offering expenses were approximately $1,849.

These proceeds were partially offset by the settlement

payment of $100 on the Seller Note.

The 2020 proceeds were driven by the Company’s receipt of a $1,552 Paycheck Protection Program

loan and the exercise of 27,600 warrants during the three months ended June 30, 2020.

On March 7, 2021, the Company refinanced its current

debt facilities with Slipstream Communications, LLC (“Slipstream”), pursuant to an Amended and Restated Credit and Security

Agreement (the “Credit Agreement”).

The debt facilities continue to be fully secured by all assets of the Company.

date (“Maturity Date”) on the outstanding debt and new debt was extended to March 31, 2023.

The Credit Agreement (i) provides

$1,000 of availability under a line of credit (the “Line of Credit”), (ii) consolidates our existing term and revolving line

of credit facilities into a new term loan (the “New Term Loan”) having an aggregate principal balance of approximately $4,550

(including a 3.0% issuance fee capitalized into the principal balance), (iii) increases the outstanding special convertible term loan

(the “Convertible Loan”) to approximately $2,280 (including a 3.0% issuance fee capitalized into the principal balance), and

(iv) extinguishes the outstanding obligations owed with respect to a $264 existing disbursed escrow loan in exchange for shares of the

Company’s common stock (the “Disbursed Escrow Conversion Shares”), valued at $2.718 per share (the trailing 10-day VWAP

as reported on the Nasdaq Capital Market as of the date of execution of the Credit Agreement).

The Line of Credit and Convertible Loan

accrue interest at 10% per year, and the New Term Loan accrues interest at 8% per year.

The New Term Loan requires no principal payments

until the Maturity Date, and interest payments are payable on the first day of each month until the Maturity Date.

All interest payments

owed prior to October 1, 2021 are payable as PIK payments, or increases to the principal balance of the New Term Loan only.

The Line of Credit and Convertible Loan require

payments of accrued interest payable on the first day of each month through April 1, 2022.

All such interest payments made prior to October

1, 2021 are payable as PIK payments, or increases to the principal balances under the Line of Credit and Convertible Loan only.

payments are owed under the Line of Credit or Convertible Loan until April 1, 2022, at which time all principal and interest on each of

the Line of Credit and Convertible Loan will be paid in monthly installments until the Maturity Date to fully amortize outstanding principal

by the Maturity Date.

All payments of interest (other than PIK payments)

and principal on the Line of Credit and Convertible Loan may be paid, in the Company’s sole discretion, in shares of the Company’s

Common Stock (the “Payment Shares,” and together with the Disbursed Escrow Conversion Shares, the “Shares”).

Payment Shares will be valued on a per-Share basis at 70% of the VWAP of the Company’s shares of common stock as reported on the

Nasdaq Capital Market for the 10 trading days immediately prior to the date such payment is due;

provided that the Payment Shares shall

not be valued below $0.50 per Share (the “Share Price”).

The Credit Agreement limits the Company’s

ability to issue Shares as follows (the “Exchange Limitations”):

(1) The total number of Shares that may be issued under the

Credit Agreement will be limited to 19.99% of the Company’s outstanding shares of common stock on the date the Credit Agreement

is signed (the “Exchange Cap”), unless stockholder approval is obtained to issue shares in excess of the Exchange Cap;

if Slipstream and its affiliates (the “Slipstream Group”) beneficially own the largest ownership position of shares of Company

common stock immediately prior to the proposed issuance of Payment Shares and such shares are less than 19.99% of the then-issued and

outstanding shares of Company common stock, the issuance of such Payment Shares will not cause the Slipstream Group to beneficially own

in excess of 19.99% of the issued and outstanding shares of Company common stock after such issuance unless stockholder approval is obtained

for ownership in excess of 19.99%;

and (3) if the Slipstream Group does not beneficially own the largest ownership position of shares

of Company common stock immediately prior to the proposed issuance of Payment Shares, the Company may not issue Payment Shares to the

extent that such issuance would result in Slipstream Group beneficially owning more than 19.99% of the then issued and outstanding shares

of Company common stock unless (A) such ownership would not be the largest ownership position in the Company, or (B) stockholder approval

is obtained for ownership in excess of 19.99%.

On May 17, 2021, the Company’s stockholders approved the issuance of Shares

in excess of the Exchange Limitations.

the nine months ended September 30, 2021 and 2020 were $1,745 and $2,990, respectively.

On February 18, 2021, the Company entered into

a securities purchase agreement with an institutional investor for the issuance and sale of the Company’s common stock.

proceeds from the Offering after paying estimated offering expenses were approximately $1,849.

These proceeds were partially offset by

the settlement payment of $100 on the Seller Note.

The 2020 proceeds were driven by the Company’s receipt of a $1,552 Paycheck Protection

Program loan, execution of sales via an at-the-market offering of $1,335, and the exercise of 27,600 warrants.

Off-Balance Sheet Arrangements

During the three and six months ended June 30, 2021,

During the three and nine months ended September

30, 2021, we did not engage in any off-balance sheet arrangements set forth in Item 303(a)(4) of Regulation S-K.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis