What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-08-15 compared with 2022-05-16 · 445 added, 301 removed, 52 unchanged (93% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations Forward-Looking Statements

following discussion contains various forward-looking statements within the meaning of Section 21E of the Exchange Act.

we believe that, in making any such statement, our expectations are based on reasonable assumptions, any such statement may be influenced

by factors that could cause actual outcomes and results to be materially different from those projected.

When used in the following discussion,

the words “anticipates,” “believes,” “expects,” “intends,” “plans,” “estimates,”

“projects,” 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, 2021 as

filed with the Securities and Exchange Commission on March 22, 2022.

actual results, performance or achievements could differ materially from those expressed in, or implied by, forward-looking statements.

Accordingly, we cannot be certain that any of the events anticipated by forward-looking statements will occur or, if any of them do occur,

what impact they will have on us.

We caution you to keep in mind the cautions and risks described in this document and to refrain from

attributing undue certainty to any forward-looking statements, which speak only as of the date of the document in which they appear.

We do not undertake to update any forward-looking statement.

Management’s Discussion and Analysis of Financial

Condition and Results of Operations Forward-Looking Statements

The following discussion contains various forward-looking statements

within the meaning of Section 21E of the Exchange Act.

Although we believe that, in making any such statement, our expectations are

based on reasonable assumptions, any such statement may be influenced by factors that could cause actual outcomes and results to be materially

different from those projected.

When used in the following discussion, the words “anticipates,” “believes,” “expects,”

“intends,” “plans,” “estimates,” “projects,” 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, 2021 as filed with the Securities and Exchange Commission on March 22, 2022.

Our actual results, performance

or achievements could differ materially from those expressed in, or implied by, forward-looking statements.

Accordingly, we cannot be

certain that any of the events anticipated by forward-looking statements will occur or, if any of them do occur, what impact they will

We caution you to keep in mind the cautions and risks described in this document and to refrain from attributing undue certainty

to any forward-looking statements, which speak only as of the date of the document in which they appear.

We do not undertake to update

any forward-looking statement.

Creative Realities, Inc.

(“Creative Realities,” “we,”

“us,” or the “Company”) transforms environments through digital solutions by providing innovative digital signage

solutions for key market segments and use cases, including:

● Entertainment

and Sports Venues

● Restaurants,

including quick-serve restaurants (“QSR”)

● Convenience

and Healthcare Facilities

Use Developments

Communications, Employee Experience

out of Home (DOOH) Advertising Networks

serve market-leading companies, so there is a good chance that if you leave your home today to shop, work, eat or play, you will encounter

one or more of our digital signage experiences.

Our solutions are increasingly visible because we help our enterprise customers achieve

a range of business objectives including:

Realities,” “we,” “us,” or the “Company”) transforms environments through digital solutions

by providing innovative digital signage solutions for key market segments and use cases, including:

Entertainment and Sports Venues

Restaurants, including quick-serve restaurants (“QSR”)

Convenience Stores

Financial Services

Medical and Healthcare Facilities

Mixed Use Developments

Corporate Communications, Employee Experience

Digital out of Home (DOOH) Advertising Networks

We serve market-leading companies,

so there is a good chance that if you leave your home today to shop, work, eat or play, you will encounter one or more of our digital

signage experiences.

Our solutions are increasingly visible because we help our enterprise customers achieve a range of business objectives

brand awareness

customer support

employee productivity and satisfaction

revenue and profitability

guest experience

customer/guest engagement

patient outcomes

a combination of organically grown platforms and a series of strategic acquisitions, including our recent acquisition of Reflect Systems,

in February 2022, the Company assist clients to design, deploy, manage, and monetize their digital signage networks.

sources leads and opportunities for its solutions through its digital and content marketing initiatives, close relationships with key

industry partners, specifically equipment manufacturers, and the direct efforts of its in-house industry sales experts.

Client engagements

focus on consultative conversations that ensure the Company’s solutions are positioned to help clients achieve their business objectives

in the most cost-effective manner possible.

comparing Creative Realities to other digital signage providers, our customers value the following competitive advantages:

Breadth of solutions

– Creative Realities is one of only a few companies in the industry capable of providing the full portfolio of products

and services required to implement and run an effective digital signage network.

We leverage a ‘single vendor’ approach,

providing clients with a one-stop-shop for sourcing digital signage solutions from design through day two services.

Managed labor pool

– Unlike most companies in our industry, we have a curated labor pool including thousands of qualified and vetted field technicians

available to service clients quickly nationwide.

We can meet tight schedules even in exceptionally large deployments and still ensure

quality and consistency.

In-house creative resources

– We assist clients in repurposing existing content for digital signage experiences or creating new content, an activity

for which the Company has won several design awards in recent years.

In each instance, our services can be essential in helping clients

develop an effective content program.

Network scalability

and reliability – Our software as a service (“SaaS”) content management platforms power some of the largest

and most complex digital signage networks in North America evidencing our ability to manage enterprise scale projects.

provides us purchasing power to source products and services for our customers, enabling us to deliver cost effective, reliable and

powerful solutions to small and medium size business clients.

Ad management platform

– Our customers are increasingly interested in monetizing their digital signage networks through advertising content.

efficiently scheduling advertising content into digital signage playlists to meet campaign objectives can be a challenging and labor-intensive

AdLogic, our home-grown, content management-agnostic platform, automates this process, allowing network owners to capture

more revenue with less expense.

Media sales –

Few, if any other digital signage solution providers, can offer their clients media sales as a service.

We have in-house media sales

expertise to elevate conversations with clients interested in better understanding network monetization.

We believe this meaningful

differentiation in the sales process provides an additional revenue stream to Creative Realities compared to our competitors.

Market sector expertise

– Creative Realities has in-house experts in key market segments such as automotive, retail, quick-serve restaurants (QSR),

convenience stores, and Digital Out of Home (DOOH) advertising.

Our expertise in these business segments enables our teams to provide

meaningful business conversations and offer tailored solutions with prospects and customers to their unique business objectives.

Improved customer support

Enhanced employee productivity and satisfaction

Increased revenue and profitability

Improved guest experience

Increased customer/guest engagement

Improved patient outcomes

Through a combination of organically

grown platforms and a series of strategic acquisitions, including our recent acquisition of Reflect Systems, Inc.

in February 2022,

the Company assist clients to design, deploy, manage, and monetize their digital signage networks.

The Company sources leads and opportunities

for its solutions through its digital and content marketing initiatives, close relationships with key industry partners, specifically

equipment manufacturers, and the direct efforts of its in-house industry sales experts.

Client engagements focus on consultative conversations

that ensure the Company’s solutions are positioned to help clients achieve their business objectives in the most cost-effective

manner possible.

When comparing Creative Realities

to other digital signage providers, our customers value the following competitive advantages:

Breadth of solutions – Creative Realities is one of only a few companies in the industry capable of providing the full portfolio of products and services required to implement and run an effective digital signage network.

We leverage a ‘single vendor’ approach, providing clients with a one-stop-shop for sourcing digital signage solutions from design through day two services.

Managed labor pool – Unlike most companies in our industry, we have a curated labor pool including thousands of qualified and vetted field technicians available to service clients quickly nationwide.

We can meet tight schedules even in exceptionally large deployments and still ensure quality and consistency.

In-house creative resources – We assist clients in repurposing existing content for digital signage experiences or creating new content, an activity for which the Company has won several design awards in recent years.

In each instance, our services can be essential in helping clients develop an effective content program.

Network scalability and reliability – Our software as a service (“SaaS”) content management platforms power some of the largest and most complex digital signage networks in North America evidencing our ability to manage enterprise scale projects.

This also provides us purchasing power to source products and services for our customers, enabling us to deliver cost effective, reliable and powerful solutions to small and medium size business clients.

Ad management platform – Our customers are increasingly interested in monetizing their digital signage networks through advertising content.

However, efficiently scheduling advertising content into digital signage playlists to meet campaign objectives can be a challenging and labor-intensive process.

AdLogic, our home-grown, content management-agnostic platform, automates this process, allowing network owners to capture more revenue with less expense.

Media sales – Few, if any other digital signage solution providers, can offer their clients media sales as a service.

We have in-house media sales expertise to elevate conversations with clients interested in better understanding network monetization.

We believe this meaningful differentiation in the sales process provides an additional revenue stream to Creative Realities compared to our competitors.

Market sector expertise – Creative Realities has in-house experts in key market segments such as automotive, retail, quick-serve restaurants (QSR), convenience stores, and Digital Out of Home (DOOH) advertising.

Our expertise in these business segments enables our teams to provide meaningful business conversations and offer tailored solutions with prospects and customers to their unique business objectives.

These experts build industry relationships and create thought leadership that drives lead flow and new opportunities for our business.

Implementing a large digital signage project can be a logistics nightmare that can stall an initiative even before deployment.

expertise in logistics improves deployment efficiency, reduces delays and problems, and saves customers time and money.

Technical support

– Digital signage networks present unique challenges for corporate IT departments.

Creative Realities helps simplify and improve

end user support by leveraging our own Network Operations Center (“NOC”) in Louisville, Kentucky.

The NOC resolves many

issues remotely and when field support is required, it can be dispatched from the NOC, leveraging our managed labor pool to resolve

customer issues quickly and effectively.

Integrations and Application

Development – The future of digital signage is not still images and videos on a screen.

Interactive applications and integrations

with other data sources will dominate the future.

From social media feeds to corporate data stores to Point of Sale (“POS”)

systems, our proven ability to build scalable applications and integrations is a key advantage clients can leverage to deliver more

compelling and engaging experiences for their customers.

Hardware support

– A number of digital signage providers sell a proprietary media player or align themselves with just one operating system.

We utilize a range of media players including Windows, Android and BrightSign to provide clients the flexibility they need to select

the appropriate hardware for any application knowing the entire network can still be served by a single digital signage platform,

reducing complexity and improving the productivity of their teams.

three primary sources of revenue for the Company are:

sales from reselling digital signage hardware from original equipment manufacturers such

as Samsung and BrightSign.

revenue from helping customers design, deploy and manage their digital signage network, including:

system design/engineering

Logistics – Implementing a large digital signage project can be a logistics nightmare that can stall an initiative even before deployment.

Our expertise in logistics improves deployment efficiency, reduces delays and problems, and saves customers time and money.

Technical support – Digital signage networks present unique challenges for corporate IT departments.

Creative Realities helps simplify and improve end user support by leveraging our own Network Operations Center (“NOC”) in Louisville, Kentucky.

The NOC resolves many issues remotely and when field support is required, it can be dispatched from the NOC, leveraging our managed labor pool to resolve customer issues quickly and effectively.

Integrations and Application Development – The future of digital signage is not still images and videos on a screen.

Interactive applications and integrations with other data sources will dominate the future.

From social media feeds to corporate data stores to Point of Sale (“POS”) systems, our proven ability to build scalable applications and integrations is a key advantage clients can leverage to deliver more compelling and engaging experiences for their customers.

Hardware support – A number of digital signage providers sell a proprietary media player or align themselves with just one operating system.

We utilize a range of media players including Windows, Android and BrightSign to provide clients the flexibility they need to select the appropriate hardware for any application knowing the entire network can still be served by a single digital signage platform, reducing complexity and improving the productivity of their teams.

The three primary sources of revenue for the Company

Hardware sales from reselling digital signage hardware from original equipment manufacturers such as Samsung and BrightSign.

Services revenue from helping customers design, deploy and manage their digital signage network, including:

Hardware system design/engineering

Hardware installation

1 unchanged sentence

Content scheduling

Post-deployment network

and field support

Media sales, as a result

of our acquisition of Reflect

subscription licensing and support revenue from our digital signage software platforms, which

are generally sold via a SaaS model.

Post-deployment network and field support

Media sales, as a result of our acquisition of Reflect

Recurring subscription licensing and support revenue from our digital signage software platforms, which are generally sold via a SaaS model.

These include:

○ ReflectView ,

the Company’s core digital signage platform for most applications, scalable and cost

effective from 10 to 100,000+ devices

Reflect Xperience ,

a web-based interface that allows customers to give content scheduling access to local users via the web or mobile devices, while

still maintaining centralized programming control

Reflect AdLogic ,

the Company’s ad management platform for digital signage networks, which presently delivers approximately 50 million ads daily

Reflect Clarity ,

the Company’s menu board solution, which has become a market leader for a range of restaurant and convenience store applications

Reflect Zero Touch ,

which allows customers to turn any screen into an interactive experience by allowing guests to engage using their mobile device

iShowroomProX ,

an omni-channel digital sales support platform targeted at original equipment manufacturers in the

transportation sector, which integrates with dozens of key data services including dealer inventory

OSx+ , a digital

VIN-level checklist used to assist in the tracking and delivery of new vehicles in the transportation sector, providing measurable

lift in customer satisfaction scores and connected vehicle enrollments and subscription activations.

hardware sales and support services revenues can fluctuate more significantly year over year based on new, large-scale network deployments,

the Company expects to see continuous growth in recurring SaaS revenue for the foreseeable future as digital signage adoption/utilization

continues to expand across the vertical markets we serve.

Please see Note 1 Nature of Organization and

Operations to the Company’s Condensed Consolidated Financial Statements contained in this report for a description of recent

developments of the Company that occurred during the three months ended March 31, 2022.

Sources of Revenue

generate revenue through digital signage solution sales, which include system hardware, professional and implementation services, software

design and development, software licensing, deployment, and maintenance and support services.

currently market and sell our technology and solutions primarily through our sales and business development personnel, but we also utilize

agents, strategic partners, and lead generators who provide us with access to additional sales, business development and licensing opportunities.

expenses are primarily comprised of three categories:

ReflectView , the Company’s core digital signage platform for most applications, scalable and cost effective from 10 to 100,000+ devices

Reflect Xperience , a web-based interface that allows customers to give content scheduling access to local users via the web or mobile devices, while still maintaining centralized programming control

Reflect AdLogic , the Company’s ad management platform for digital signage networks, which presently delivers approximately 50 million ads daily

Reflect Clarity , the Company’s menu board solution, which has become a market leader for a range of restaurant and convenience store applications

Reflect Zero Touch , which allows customers to turn any screen into an interactive experience by allowing guests to engage using their mobile device

iShowroomProX , an omni-channel digital

sales support platform targeted at original equipment manufacturers in the transportation sector, which integrates with dozens of key

data services including dealer inventory at the VIN

OSx+ , a digital VIN-level checklist used to assist in the tracking and delivery of new vehicles in the transportation sector, providing measurable lift in customer satisfaction scores and connected vehicle enrollments and subscription activations.

While hardware sales and support

services revenues can fluctuate more significantly year over year based on new, large-scale network deployments, the Company expects to

see continuous growth in recurring SaaS revenue for the foreseeable future as digital signage adoption/utilization continues to expand

across the vertical markets we serve.

Recent Developments

Please see Note 5 Business Combinations , Note 9 Loans Payable ,

Note 12 Warrants , and Note 13 Stock-based Compensation to the Company’s Condensed Consolidated Financial Statements

contained in this Report for a description of recent developments of the Company that occurred during the three months ended June 30,

Our Sources of Revenue

We generate revenue through

digital signage solution sales, which include system hardware, professional and implementation services, software design and development,

software licensing, deployment, maintenance and support services, and media sales.

We currently market and sell

our technology and solutions primarily through our sales and business development personnel, but we also utilize agents, strategic partners,

and lead generators who provide us with access to additional sales, business development and licensing opportunities.

Our expenses are primarily

comprised of three categories:

sales and marketing, research and development, and general and administrative.

Sales and marketing expenses include salaries and benefits for our sales, business development solution management and marketing personnel,

and commissions paid on sales.

This category also includes amounts spent on marketing networking events, promotional materials, hardware

and software to prospective new customers, including those expenses incurred in trade shows and product demonstrations, and other related

Our research and development expenses represent the salaries and benefits of those individuals who develop and maintain our

proprietary software platforms and other software applications we design and sell to our customers.

Our general and administrative expenses

consist of corporate overhead, including administrative salaries, real property lease payments, salaries and benefits for our corporate

officers and other expenses such as legal and accounting fees.

Accounting Policies and Estimates

Company’s significant accounting policies are described in Note 2 Summary of Significant Accounting Policies of the Company’s

Condensed Consolidated Financial Statements included elsewhere in this report.

The Company’s Condensed Consolidated Financial Statements

are prepared in conformity with accounting principles generally accepted in the United States.

Certain accounting policies involve significant

judgments, assumptions, and estimates by management that could have a material impact on the carrying value of certain assets and liabilities

and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts

of revenue and expenses during the reporting period.

Sales and marketing expenses

include salaries and benefits for our sales, business development solution management and marketing personnel, and commissions paid on

This category also includes amounts spent on marketing networking events, promotional materials, hardware and software to prospective

new customers, including those expenses incurred in trade shows and product demonstrations, and other related expenses.

Our research and

development expenses represent the salaries and benefits of those individuals who develop and maintain our proprietary software platforms

and other software applications we design and sell to our customers.

Our general and administrative expenses consist of corporate overhead,

including administrative salaries, real property lease payments, salaries and benefits for our corporate officers and other expenses such

as legal and accounting fees.

Critical Accounting Policies and Estimates

The Company’s significant accounting policies are described in

Note 2 Summary of Significant Accounting Policies of the Company’s Condensed Consolidated Financial Statements included elsewhere

in this Report.

The Company’s Condensed Consolidated Financial Statements are prepared in conformity with accounting principles

generally accepted in the United States.

Certain accounting policies involve significant judgments, assumptions, and estimates by management

that could have a material impact on the carrying value of certain assets and liabilities and disclosure of contingent assets and liabilities

at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting period.

Our actual results could differ from those estimates.

of Operations

All dollar amounts reported in Results of Operations are in thousands, except share and per-share information.

Months Ended March 31, 2022 Compared to Three Months Ended March 31, 2021

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.

Reflect via the Merger during the three months ended March 31, 2022, on February 17, 2022.

As a result, our consolidated financial results

for such period include the operations of Reflect for 44 days, between February 17, 2022 and March 31, 2022.

Three months ended

Results of Operations

All dollar amounts

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

Three Months Ended June 30, 2022 Compared to Three Months Ended

June 30, 2021

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 three months

ended June 30,

Cost of sales

2 unchanged sentences

General and administrative expenses

Depreciation and amortization expense

Deal and transaction expense

Total operating expenses

Operating (loss)

Other income/(expenses):

Interest expense

Change in Fair Value of Warrant Liability

Change in Fair Value of Equity Guarantee

Loss on warrant amendment

Gain on settlement of debt

Other income/(expense)

Total other income/(expense)

Net income/(loss) before income taxes

Provision from income taxes

Net income/(loss)

Sales were $10,923, representing an increase of $7,646, or 233%, as

compared to the same period in 2021, driven in part by the acquisition of Reflect on February 17, 2022, and the Company’s successful

sales activities as a combined company post-Merger.

While the addition of Reflect revenue is contributing to the growth in revenue, the

combined company grew revenues approximately 74% organically during the three months ended June 30, 2022, as compared to the pro forma

combined results during the three months ended June 30, 2021.

Hardware revenues were $5,667

in 2022, an increase of $4,371, or 337%, as compared to the prior year, driven by continued large scale LED deployments continued in the

quarter by multiple customers.

Services and other revenues were $5,256 in the three months ended June 30, 2022, an increase of $3,275,

or 165%, with the inclusion of Reflect’s operations in the Company’s consolidated results for such period.

Managed services

revenue, which includes both software-as-a-service (“SaaS”) and help desk technical subscription services, were $3,832 in

the three months ended June 30, 2022 as compared to $1,391 in the same period in 2021, driven by the addition of Reflect’s SaaS

subscription revenue in the current year.

This represents a year-over-year growth rate of 175% in our higher margin, typically subscription-based,

managed services revenue.

Gross profit increased by $2,787, or 149% during the three months ended

June 30, 2022 as compared to the same period in 2021 driven by an increase in revenue but offset by a reduction in gross profit margin.

Gross profit margin decreased to 42.7% from 57.2% driven by a shift in revenue mix to 52% hardware during the three months ended June

30, 2022 related to several material customer hardware rollouts active during the first half of the year.

We expect this contraction in

gross profit margin to be less severe as we move into the second half of 2022 and beyond.

The gross profit margin increased in three months

ended June 30, 2022 to 42.7% from 36.2% in the three months ended March 31, 2022, which experienced significant short-term significant

pressure driven by a single, large-scale/hardware-heavy deployment.

We believe the gross profit margin for the three months ended June

30, 2022 to be more representative of our normalized gross profit margins.

Sales and Marketing Expenses

Sales and marketing expenses generally include the salaries, taxes,

and benefits of our sales and marketing personnel, as well as trade show activities, travel, and other related sales and marketing costs.

Sales and marketing expenses increased by $978, or 579%, driven primarily by (i) the inclusion in the prior year of a benefit of $182

related Employee Retention Credits (“ERC”) related to the retention and payment of salaries to sales personnel throughout

2020 and the six months ended June 30, 2021, (ii) the acquisition of Reflect via the Merger on February 17, 2022, and (iii) the Company’s

enhanced investments into sales and marketing activities post-COVID.

Immediately following the Merger, the Company integrated the sales

and marketing functions and did not disaggregate expenses between the two legacy companies.

Following the Merger and through integration

activities, the Company adopted certain tools, technology, and processes – particularly with respect to lead generation and brand

marketing – that were undercapitalized historically by the Company.

Additionally, the Company engaged an investor relations firm

and has increased investor relations activities, including conferences and presentations.

As a result, we expect the sales and marketing

expenses of the Company for the three months ended June 30, 2022 to adequately reflect the pace for spend in these areas in future reporting

Research and Development Expenses

Research and development expenses increased $360, or 621% in 2022,

driven primarily by (i) the inclusion in the prior year of a benefit of $147 related ERC, and (ii) the acquisition of Reflect via the

Merger on February 17, 2022.

Through the Merger, we acquired a fully staffed, experienced software development team and elected to keep

that team in-tact, particularly given employment market conditions with respect to talented software engineers.

We have integrated the

pre-existing CRI development team with the acquired team and have experienced enhanced speed to market on new feature and functionality

development activities from increasing this resource pool.

We expect this elevated level of expense during the three months ended June

30, 2022 to continue into the future as we develop our current and future product set.

General and Administrative Expenses

General and administrative expenses increased $847, or 49%, driven

primarily by (i) the inclusion in the prior year of a benefit of $508 related ERC, and (ii) increased headcount and operations as a result

of the acquisition of Reflect on February 17, 2022.

While the Company anticipates carrying higher G&A expenses moving forward as a

result of the acquisition, the integration activities include several projects (including but not limited to consolidation of CMS tools,

cloud hosting environments, IT tools, and rightsizing leases for office space) that we expect will be realized by the end of 2022.

Company also reinstituted its 401k matching program for employees in the fourth quarter of 2021, which represents an increase of $42 versus

the prior year.

Depreciation and Amortization Expenses

Depreciation and amortization

expenses increased by $124, or 36%, in the three months ended June 30, 2022 compared to the same period in 2021.

This was driven by the

addition of $17,160 in amortizing intangible assets as a result of the Merger.

The increase would have been $305, or 88%, but was partially

offset by a reduction in amortization expense recorded as a period expense in the three months ended June 30, 2022 resulting from a measurement

period adjustment reducing acquired intangible assets by $4,340.

Interest Expense

See Note 9 Loans Payable to the Condensed

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

Changes in Fair Value of Warrant Liability;

Loss on Warrant Amendment

During the three months ended

June 30, 2022, the Company recorded a gain of $2,433 as the result of assessing the fair value of warrant liabilities associated with

the Company’s issuance of warrants (the Common Stock Warrant, Lender Warrant and Purchaser Warrant) in its debt and equity offerings

completed in February 2022 to finance the Merger.

These warrants were initially assessed at fair value through Black Scholes calculation

and were subsequently re-assessed at June 30, 2022, resulting in the gain.

June 30, 2022, the Company amended the terms of such warrants, which removed the holder’s option to exercise such warrants on a

cashless basis utilizing the VWAP of the Company’s common stock on the trading day immediately preceding the date of a notice of

cashless exercise in certain circumstances, and removed the condition to exercising such warrants that the Company’s shareholders

approve the exercise thereof (which has already been obtained).

The amendments to the warrants extended the term of such warrants for

an additional one year.

As a result of the extension in term provided in exchange for the amendment, the Company reassessed the fair value

of those warrants, resulting in the Company recording a loss on the fair value of these warrants of $345.

The foregoing amendments to

the warrants resulted in such warrants to be accounted for as equity instruments on the Company’s financial statements as of June

As such, following recording the gains and losses with respect to these warrant amendments, the Company reclassified the warrant

liability of $5,709 from noncurrent liabilities to additional paid-in-capital as of June 30, 2022.

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 agreements.

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, 2022 Compared to Six Months Ended June

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 six months

ended June 30,

Cost of sales

Sales and marketing expenses

Research and development expenses

General and administrative expenses

Bad debt expense/(recovery)

2 unchanged sentences

Total operating expenses

Operating income/(loss)

Operating loss

Other income/(expenses):

Interest expense

Change in fair value of Special Loan

Gain on settlement of debt

Change in Fair Value of Warrant Liability

Change in Fair Value of Equity Guarantee

Loss on debt waiver consent

Loss on warrant amendment

Change in fair value of Convertible Loan

Gain/(loss) on restructuring/settlement of debt

Other income/(expense)

3 unchanged sentences

Net income/(loss)

Revenues were $10,757, representing an increase of $5,753, or 115%,

as compared to the same period in 2021 despite a reduction in revenues generated from the sale of our Safe Space Solutions products and

services of $894.

Revenues generated from our core digital signage products and services increased $6,647, or 133% in 2022 as compared

to 2021, despite continued supply chain disruptions related to semiconductor chips delaying the delivery of digital displays and media

players to the Company.

The Company acquired Reflect

on February 17, 2022, and the Company’s consolidated results for the three months ended March 31, 2022 include 44 days of Reflect’s

Sales were $21,680, representing

an increase of $13,399, or 162%, as compared to the same period in 2021 driven in part by the acquisition of Reflect on February 17,

2022, and the Company’s successful sales activities as a combined company post-Merger.

While the addition of Reflect revenue is

contributing to the growth in revenue, the combined company has grown revenues approximately 58% organically during the six months ended

June 30, 2022, as compared to the pro forma combined results during the six months ended June 30, 2021.

Hardware revenues were $12,126

in 2022, an increase of $3,643, or 129%, as compared to the prior year, driven primarily delivering Phase I of our previously announced

a large customer transaction expected to exceed $10,000 in revenues.

The Company began providing services and deliverables on the customer

transaction in February 2022 and is anticipated to complete the project by the end of the first quarter of 2023, subject to the customer’s

capacity to receive such products and services.

Excluding Safe Space Solutions hardware, which reduced $768 year-over-year, core digital

signage hardware sales increased $4,411 million, or 158%.

Services and other revenues were $4,298 in the three months ended March

31,2022, an increase of $2,110, or 96%, with the inclusion of 44 days of Reflect’s operations in the Company’s consolidated

results for such period.

Managed services revenue, which includes both software-as-a-service (“SaaS”) and help desk technical

subscription services, were $2,703 in the three months ended March 31, 2022 as compared to $1,339 in the same period in 2021, with the

inclusion of 44 days of Reflect’s operations in the Company’s consolidated results for such period.

Gross profit increased by

$1,658, or 74% driven by an increase in revenue but offset by a reduction in gross profit margin.

Gross profit margin decreased to 36.2%

from 44.6% driven by a shift in revenue mix to 60% hardware in the first quarter of 2022 related to a material customer rollout underway.

We expect this contraction in gross profit margin to be less severe as we move into the second quarter of 2022 and beyond, with significant

pressure in the current quarter driving by a single, large-scale/hardware-heavy deployment.

Sales and Marketing

Sales and marketing expenses increased by $372, or 111%, driven by

the acquisition of Reflect during the three months ended March 31, 2022period.

Immediately following the acquisition of Reflect, the Company

integrated the sales and marketing functions and does not disaggregate these expenses between the two legacy companies.

Following the

Merger and through integration activities, the Company has adopted certain tools, technology, and processes – particularly with

respect to lead generation and brand marketing – that were minimally invested in historically by the Company.

in 2022, an increase of $8,014, or 195%, as compared to the prior year, driven by large scale LED deployments by multiple customers.

and other revenues were $9,554 in the six months ended June 30, 2022, an increase of $5,385, or 129%, with the inclusion of Reflect’s

operations in the Company’s consolidated results for such period.

Managed services revenue, which includes both software-as-a-service

(“SaaS”) and help desk technical subscription services, were $6,535 in the six months ended June 30, 2022 as compared to $2,730

in the same period in 2021, driven by the addition of Reflect’s SaaS subscription revenue in the current year.

This represents a

year-over-year growth rate of 139% in our higher margin, typically subscription-based, managed services revenue.

Gross profit increased by $4,445, or 108% during the six months ended

June 30, 2022 as compared to the same period in 2021 driven by an increase in revenue but offset by a reduction in gross profit margin.

Gross profit margin decreased to 39.5% from 49.6% driven by a shift in revenue mix to 56% hardware during the six months ended June 30,

2022 related to several material customer hardware rollouts active during the first half of the year.

We expect this contraction in gross

profit margin to be less severe as we move into the second half of 2022 and beyond.

The gross profit margin increased in three months

ended June 30, 2022 to 42.7% from 36.2% in the three months ended March 31, 2022, which experienced significant short-term significant

pressure driven by a single, large-scale/hardware-heavy deployment.

We expect the gross profit margin for the three months ended June

30, 2022 to be more representative of our normalized gross profit margins.

Sales and Marketing Expenses

Sales and marketing expenses

generally include the salaries, taxes, and benefits of our sales and marketing personnel, as well as trade show activities, travel, and

other related sales and marketing costs.

Sales and marketing expenses increased by $1,350, or 268%, driven primarily by (i) the inclusion

in the prior year of a benefit of $182 related Employee Retention Credits (“ERC”) related to the retention and payment of

salaries to sales personnel throughout 2020 and the six months ended June 30, 2021, (ii) the acquisition of Reflect on February 17, 2022,

and (iii) the Company’s enhanced investments into sales and marketing activities post-COVID.

Immediately following the acquisition

of Reflect, the Company integrated the sales and marketing functions and did not disaggregate expenses between the two legacy companies.

Following the Merger and through integration activities, the Company adopted certain tools, technology, and processes – particularly

with respect to lead generation and brand marketing – that were undercapitalized historically by the Company.

Additionally, the

Company engaged an Investor Relations firm and has increased investor relations activities, including conferences and presentations.

a result, we expect the sales and marketing expenses of the Company to continue at the current pace for future periods.

Research and Development

a result, we expect the sales and marketing expenses of the Company for the six months ended June 30, 2022 to adequately reflect the pace

for spend in these areas in future periods.

Research and Development Expenses

increased $70, or 41% in 2022, driven primarily by the acquisition of Reflect.

Through the acquisition of Reflect, we acquired a fully

staffed, experienced software development team and elected to keep that team in-tact, in full, particularly given employment market conditions

with respect to talented software engineers.

We have integrated the pre-existing CRI development team with the acquired team and have

experienced enhanced speed to market on new feature and functionality development activities from increasing this resource pool.

this elevated level of expense to continue into the future as we continue to develop our current and future product set.

General and Administrative

Research and development expenses

increased $430, or 188% in 2022, driven primarily by (i) the inclusion in the prior year of a benefit of $147 related ERC, and (ii) the

acquisition of Reflect on February 17, 2022.

Through the acquisition of Reflect, we acquired a fully staffed, experienced software development

team and elected to keep that team in-tact, in full, particularly given employment market conditions with respect to talented software

We have integrated the pre-existing CRI development team with the acquired team and have experienced enhanced speed to market

on new feature and functionality development activities from increasing this resource pool.

We expect this elevated level of expense during

the three months ended June 30, 2022 to continue into the future as we develop our current and future product set.

General and Administrative Expenses

General and administrative expenses – excluding bad debt expense

– increased $645, or 31%, driven by the acquisition of Reflect.

While the Company anticipates carrying higher G&A expenses moving

forward as a result of the acquisition, the integration activities include several projects (including but not limited to consolidation

of CMS tools, cloud hosting environments, IT tools, and rightsizing leases for office space) that we expect will be realized by the end

Bad debt expense returned to a more normalized rate of $106 during the first quarter of 2022, representing an increase of $618

as compared to the comparable period in 2021 as the result of a bankruptcy recovery in 2021.

related to the Company’s allowance for bad debts increased by $618, or 121%, in 2022 compared to 2021.

This return to expense is

the result of standard operations.

The prior year included a cash recovery of $555 related to a customer bankruptcy for which the Company

previously recorded a reserve.

and Amortization Expenses

– increased $1,541, or 41%, driven primarily by (i) the inclusion in the prior year of a benefit of $508 related ERC, and (ii) increased

headcount and operations as a result of the acquisition of Reflect on February 17, 2022.

While the Company anticipates carrying higher

G&A expenses moving forward as a result of the acquisition, the integration activities include several projects (including but not

limited to consolidation of CMS tools, cloud hosting environments, IT tools, and rightsizing leases for office space) that we expect will

be realized by the end of 2022.

The Company also reinstituted its 401k matching program for employees in the fourth quarter of 2021, which

represents an increase of $65 versus the prior year, and launched several investor relations initiatives, increasing spend $155 year-to-date

in 2022 versus the prior year.

Expenses related to the Company’s allowance

for bad debts increased by $569, or (123%) for the six months ended June 30, 2022 compared to 2021.

This increase was primarily driven

by a prior period cash recovery of $555 related to a customer bankruptcy for which the Company previously recorded a reserve.

debt expense recorded for the six months ended June 30, 2022 is representative of the Company’s actual history with uncollectable

accounts receivable.

Depreciation and Amortization Expenses

Depreciation and amortization

2 unchanged sentences

as a result of the Merger.

Expense, Change in fair value of warrant liability, Other expense

Note 8 Loans Payable to the Condensed Consolidated Financial Statements for a discussion of the Company’s debt and related

interest expense obligations.

the three months ended March 31, 2022, the Company recorded a gain of $5,469 as the result of assessing the fair value of warrant

liabilities associated with the Company’s issuance of warrants in its debt and equity offerings completed in February 2022

to finance the Merger.

These warrants were initially assessed at fair value through Black Scholes calculation and were subsequently re-assessed

at March 31, 2022, resulting in the gain.

Operating Results on a Non-GAAP Basis

following non-GAAP data, which adjusts for the categories of expenses described below, is a non-GAAP financial measure.

Our management

believes that this non-GAAP financial measure is useful information for investors, shareholders and other stakeholders of our company

in gauging our results of operations on an ongoing basis.

We believe that EBITDA is a performance measure and not a liquidity measure,

and therefore a reconciliation between net loss/income and EBITDA and Adjusted EBITDA has been provided.

EBITDA should not be considered

as an alternative to net loss/income as an indicator of performance or as an alternative to cash flows from operating activities as an

indicator of cash flows, in each case as determined in accordance with GAAP, or as a measure of liquidity.

In addition, EBITDA does not

take into account changes in certain assets and liabilities as well as interest and income taxes that can affect cash flows.

intend the presentation of these non-GAAP measures to be considered in isolation or as a substitute for results prepared in accordance

These non-GAAP measures should be read only in conjunction with our consolidated financial statements prepared in accordance

Interest Expense;

Change in fair value of Convertible Loan

See Note 9 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, we updated our fair value

analysis of the Convertible Loan, resulting in recognition of a $166 during the six months ended June 30, 2021.

Changes in Fair Value of Warrant Liability;

Loss on Warrant Amendment

During the six months ended

June 30, 2022, the Company recorded a gain of $7,902 as the result of assessing the fair value of warrant liabilities associated with

the Company’s issuance of warrants in its debt and equity offerings completed in February 2022 to finance the Merger.

warrants were initially assessed at fair value through Black Scholes calculation and were subsequently re-assessed at March 31, 2022 and

June 30, 2022, resulting in the gain.

June 30, 2022, the Company amended the terms of certain warrants previously issued to its creditor and an investor, which removed the

holder’s option to exercise such warrants on a cashless basis utilizing the VWAP of the Company’s common stock on the trading

day immediately preceding the date of a notice of cashless exercise in certain circumstances, and removed the condition to exercising

such warrants that the Company’s shareholders approve the exercise thereof (which has already been obtained).

The amendments to

the warrants extended the term of such warrants for an additional one year.

As a result of the extension in term provided in exchange

for the amendment, the Company reassessed the fair value of those warrants, resulting in the Company recording a loss on the fair value

of these warrants of $345.

The foregoing amendments to the warrants resulted in such warrants to be accounted for as equity instruments

on the Company’s financial statements as of June 30, 2022.

As such, following recording the gains and losses with respect to these

warrant amendments, the Company reclassified the warrant liability of $5,709 from noncurrent liabilities to additional paid-in-capital

as of June 30, 2022.

Gain on Settlement of Debt

On February 17, 2022,

the Company refinanced its debt facilities with Slipstream.

The Company assessed the combination of the pre-existing senior secured term

loan and secured convertible loan in accordance with ASC 470 Debt and determined the transaction should be accounted for as an

extinguishment, in part as the Consolidation Term Loan eliminated a substantive conversion feature.

In aggregate the Company recorded

a loss on extinguishment of $295, primarily associated with the write-off of pre-existing debt discounts.

On January 11, 2021, the

Company received a notice from Old National Bank regarding forgiveness of the loan in the principal amount of $1,552 (the “PPP Loan”)

that was made pursuant to the Small Business Administration Paycheck Protection Program under the Coronavirus Aid, Relief and Economic

Security Act of 2020.

According to such notice, the full principal amount of the PPP Loan and the accrued interest have been forgiven,

resulting in a gain of $1,552 during the six months ended June 30, 2021.

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.

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 six months ended June 30, 2021.

Supplemental Operating Results on a Non-GAAP Basis

The following non-GAAP data,

which adjusts for the categories of expenses described below, is a non-GAAP financial measure.

Our management believes that this non-GAAP

financial measure is useful information for investors, shareholders and other stakeholders of our company in gauging our results of operations

on an ongoing basis.

We believe that EBITDA is a performance measure and not a liquidity measure, and therefore a reconciliation between

net loss/income and EBITDA and Adjusted EBITDA has been provided.

EBITDA should not be considered as an alternative to net loss/income

as an indicator of performance or as an alternative to cash flows from operating activities as an indicator of cash flows, in each case

as determined in accordance with GAAP, or as a measure of liquidity.

In addition, EBITDA does not take into account changes in certain

assets and liabilities as well as interest and income taxes that can affect cash flows.

We do not intend the presentation of these non-GAAP

measures to be considered in isolation or as a substitute for results prepared in accordance with GAAP.

These non-GAAP measures should

be read only in conjunction with our consolidated financial statements prepared in accordance with GAAP.

Quarters Ended

September 30,

Quarters ended

5 unchanged sentences

Amortization of intangible assets

Amortization of finance lease assets

Amortization of employee share-based awards

1 unchanged sentence

Income tax expense/(benefit)

(Gain)/loss on fair value of debt

(Gain)/loss on fair value of warrant liability

1 unchanged sentence

(Gain)/loss on debt waiver consent

(Gain)/loss on warrant amendment

(Gain)/loss on fair value of equity guarantee

Deal and transaction expenses

1 unchanged sentence

Adjusted EBITDA

and Capital Resources

accompanying Condensed Consolidated Financial Statements have been prepared on the basis of the realization of assets and the satisfaction

of liabilities and commitments in the normal course of business and do not include any adjustments to the recoverability and classifications

of recorded assets and liabilities as a result of uncertainties.

We produced net income for

the three months ended March 31, 2022 and for the year ended December 31, 2021 and had positive cash flows from operating activities

for both periods.

As of March 31, 2022, we had cash and cash equivalents of $5,988 and a working capital surplus of $2,288.

Management believes that, based on (i) the execution of the Equity

Financing, (ii) the refinancing of our debt as part of the Debt Financing, including extension of the maturity date on our term loans,

and (iii) our operational forecast through 2022 following completion of the Merger, that we can continue as a going concern through at

least June 30, 2023.

However, given our historical net losses and cash used in operating activities, we obtained a continued support

letter from Slipstream through May 16, 2023.

We can provide no assurance that our ongoing operational efforts will be successful

which could have a material adverse effect on our results of operations and cash flows.

The cash flows provided by operating

activities were $1,201 for the period ended March 31, 2022 as compared to cash flows used in operating activities of $21 for the

period ended March 31, 2021.

Liquidity and Capital Resources

See Note 1 Nature of Organization and Operations

to the accompanying Condensed Consolidated Financial Statements for a detailed discussion of liquidity and financial resources.

Operating Activities

The cash used in operating

activities were $63 for the six months ended June 30, 2022 compared to $363 for the same period in 2021.

We produced net income of $3,764.

Following the Merger, our business has significantly expanded, particularly

with respect to managed services revenue.

Other than net income, cash provided by operating activities was driven by growth of $1,901

of deferred revenue and $2,292 of accounts payable, partially offset by an expansion of accounts receivable of $3,724.

Net cash used in investing activities during the three months ended

March 31, 2022 was $17,969 compared to $115 during the same period in 2021.

The use of cash in the current year was driven by (1)

completion of the Merger and (2) continued investments in our software platforms.

We currently do not have any material commitments for

capital expenditures as of March 31, 2022;

however, we anticipate continued elevated capital expenditures in excess of historical

trends through as a result of the Merger, which included acquisition of a software development team.

Net cash provided by financing activities during the three months ended

March 31, 2022 was $19,873 compared to $1,845 for the same period in 2021.

The increase is the result of the Company’s completion

of the Equity Financing and the Debt Financing (each as described in “Recent Developments” above) in the period to facilitate

the Merger, which provided net cash of $10,109 and $9,868, respectively.

We have no material commitments for capital expenditures, and we do

not anticipate any significant capital expenditures for the remainder of 2022.

Sheet Arrangements

the three months ended March 31, 2022, we did not engage in any off-balance sheet arrangements set forth in Item 303(a) (4)

of Regulation S-K.

Following the Merger, our business has significantly expanded, particularly with respect to managed services revenue.

Other than net income,

cash provided by operating activities was driven by growth of $1,178 of deferred revenue and $2,487 of accounts payable, partially offset

by an expansion of accounts receivable and inventory of $4,035 and $562, respectively.

Investing Activities

Net cash used in investing

activities during the six months ended June 30, 2022 was $19,546 compared to $204 during the same period in 2021.

The use of cash in the

current year was driven by (1) completion of the Merger and (2) continued investments in our software platforms.

We currently do not have

any material commitments for capital expenditures as of June 30, 2022;

however, we anticipate continued elevated capital expenditures

in excess of historical trends through as a result of the Merger, which included acquisition of a software development team and various

new content management and advertising technology platforms.

Financing Activities

Net cash provided by financing

activities during the six months ended June 30, 2022 was $19,566 compared to $1,745 for the same period in 2021.

The increase is the result

of the Company’s completion of the Equity Financing and the Debt Financing (each as described in Note 1 Nature of Organization

and Operations to the accompanying Condensed Consolidated Financial Statements) in the period to facilitate the Merger, which provided

net cash of $10,109 and $9,868, respectively.

Contractual Obligations

We have no material commitments

for capital expenditures, and we do not anticipate any significant capital expenditures for the remainder of 2022.

Off-Balance Sheet Arrangements

During the three months ended

March 31, 2022, 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