What changed in this filing

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Item 1. Financial Statements

2022-11-14 compared with 2022-08-15 · 553 added, 557 removed, 877 unchanged (56% of the section changed)

5 unchanged sentences

except per share amounts)

September 30,

CURRENT ASSETS

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Short-term seller note payable

Short-term portion of Related Party Consolidation Term Loan

Accounts payable

2 unchanged sentences

Customer deposits

Current maturities of operating

Current maturities of operating leases

Total current liabilities

20 unchanged sentences

except per share amounts)

Three Months Ended

Six Months Ended

For the Three Months Ended

For the Nine Months Ended

September 30,

Services and other

8 unchanged sentences

Depreciation and amortization expense

Deal and transaction expense

Deal and transaction expenses

Total operating expenses

Operating income/(loss)

Operating loss

Other income/(expenses):

2 unchanged sentences

Change in fair value of equity guarantee

Gain/(loss) on settlement of obligations

Loss on debt waiver consent

Loss on warrant amendment

Gain/(loss) on settlement of obligations

Change in fair value of Convertible Loan

Other expense

Total other income

Total other income/(expense)

Income/(loss) before income taxes

Benefit/(provision) for income taxes

Basic earnings per common share

Net income/(loss)

Basic earnings/(loss) per common share

Diluted earnings/(loss) per common share

7 unchanged sentences

(In thousands)

Six Months Ended

Nine Months Ended

September 30,

Operating Activities:

7 unchanged sentences

Change in fair value of Convertible Loan

Deferred tax provision

Allowance for doubtful accounts

2 unchanged sentences

Loss on warrant amendment

Loss on change in fair value of contingent consideration

Loss/(Gain) on settlement of obligations

Gain on change in fair value of contingent consideration

Gain on change in fair value of warrants

(Gain)/loss on settlement of obligations

Changes to operating assets and liabilities:

1 unchanged sentence

Prepaid expenses and other current assets

Vendor deposits

Operating lease right-of-use assets, net

Other operating assets and liabilities, net

Accounts payable

1 unchanged sentence

Accrued expenses

Operating liabilities, net

Operating lease liabilities, non-current

1 unchanged sentence

Investing activities

Purchases of property and equipment

Capitalization of internal and third-party labor for software development

Acquisition of business, net of cash acquired

Purchases of property and equipment

Capitalization of labor for software development

Net cash used in investing activities

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CONSOLIDATED STATEMENTS OF SHAREHOLDERS’

(in thousands, except shares)

Three months ended June 30, 2022

Balance as of March 31, 2022

(in thousands, except

Three months ended September 30, 2022

Balance as of June 30, 2022

Stock-based compensation

Stock-based compensation issued to vendors

Warrant amendment

Balance as of June 30, 2022

Six months ended June 30, 2022

Balance as of September 30, 2022

Nine months ended September 30, 2022

Balance as of December 31, 2021

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Warrant amendment

Balance as of September 30, 2022

Three months ended September 30, 2021

Balance as of June 30, 2021

Three months ended June 30, 2021

Balance as of March 31, 2021

Shares issued for services

Shares issued to directors as compensation

Stock-based compensation

Balance as of June 30, 2021

Six months ended June 30, 2021

Balance as of December 31, 2020

Shares issued for services

Stock-based compensation issued to vendors

Shares issued to directors as compensation

Balance as of September 30, 2021

Nine months ended September 30, 2021

Balance as of December 31, 2020

Stock-based compensation

Stock-based compensation issued to vendors

Shares issued to directors as compensation

Conversion of Disbursed Escrow Loan

1 unchanged sentence

Sales of Shares via registered direct offering, net of offering cost

Balance as of June 30, 2021

Balance as of September 30, 2021

See accompanying notes to condensed consolidated

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On November 12, 2021,

the Company and Reflect Systems, Inc., or “Reflect,” entered into an Agreement and Plan of Merger (as amended on as amended

the Company and Reflect Systems, Inc., or “Reflect,” entered into an Agreement and Plan of Merger (as amended

on February 8, 2022, the “Merger Agreement”) pursuant to which a direct, wholly owned subsidiary of Creative Realities,

CRI Acquisition Corporation, or “Merger Sub,” would 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.”

On February 17, 2022, the parties consummated the Merger.

CRI Acquisition Corporation, or “Merger Sub,” would merge with and into Reflect, with Reflect surviving the merger and becoming

our wholly owned subsidiary, which transaction is referred to herein as the “Merger.” On February 17, 2022, the parties

consummated the Merger.

Reflect provides digital signage

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Creative Realities (valued based on an issuance price of $2 per share) (the “CREX Shares”), (iii) the Secured Promissory Note

(as described below), and (iv) 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 ten (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) calendar 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.

(as described below), and (iv) supplemental cash payments (the “Guaranteed Consideration”), if any, payable on or after February

17, 2025 (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).

The Company may exercise an extension option (the “Extension

Option”) to extend the Guarantee Date by six (6) months, from February 17, 2025 to August 17, 2025, if (i) the Extension Threshold

Price is greater than or equal to 70 % of the Guaranteed Price described above, and (ii) the Company provides written notice of its election

to exercise the Extension Option no later than February 7, 2022.

The “Extension Threshold Price” means the average closing

price per share of Creative Realities common stock as reported on the Nasdaq Capital Market (or NYSE) in the fifteen (15) consecutive

trading day period ending February 2, 2025.

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.

In connection with the Merger,

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the Company is required to pay to key members of Reflect’s management team an aggregate of $1,334 in cash, which was paid 50% at

the Closing, and subject to continuous employment with Reflect or Creative Realities, 25% on the one-year anniversary of Closing and 25%

on the two-year anniversary of the Closing.

The future cash payments due on the one-year and two-year anniversaries of the Closing have

been deposited into an escrow agreement.

The Retention Bonus Plan also requires the Company to issue Common Stock having an aggregate

value of $667 to the plan participants as follows:

50% of the value of such shares were issued at the Closing, and subject to continuous

employment with Reflect or Creative Realities, 25% of the value of such shares will be issued on the one-year anniversary of Closing and

the remaining 25% of the value of such shares will be issued on the two-year anniversary of the Closing.

The shares issued on the Closing

were valued at $2.00 per share, and the shares to be issued after the Closing will be determined based on dividing the value of shares

issuable on such date divided by the trailing 10-day volume weighted average price (VWAP) of the shares as of such date as reported on

the Nasdaq Capital Market.

Upon the resignation of a

participant’s employment for “good reason,” or termination of the employment of a participant without “cause,”

the Closing, and subject to continuous employment with Reflect or Creative Realities, 25% will be paid on February 17, 2023 (the one-year

anniversary of Closing) and 25% will be paid on February 17, 2024 (the two-year anniversary of the Closing).

The future cash payments

due on the one-year and two-year anniversaries of the Closing have been deposited into an escrow agreement.

The Retention Bonus Plan also

requires the Company to issue Common Stock having an aggregate value of $667 to the plan participants as follows:

50% of the value of

such shares were issued at the Closing, and subject to continuous employment with Reflect or Creative Realities, 25% of the value of such

shares will be issued on February 17, 2023 (the one-year anniversary of Closing) and the remaining 25% of the value of such shares will

be issued on February 17, 2024 (the two-year anniversary of the Closing).

The shares issued on the Closing were valued at $2.00 per share,

and the shares to be issued after the Closing will be determined based on dividing the value of shares issuable on such date divided by

the trailing 10-day volume weighted average price (VWAP) of the shares as of such date as reported on the Nasdaq Capital Market.

Upon the resignation of

a participant’s employment for “good reason,” or termination of the employment of a participant without “cause,”

each as defined in the Retention Bonus Plan, the participant will be fully vested and will receive all cash and shares allocated to such

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Company amended the terms of Common Stock Warrants to remove the holder’s option to exercise such warrants on a cashless basis utilizing

the volume weighted average price (“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 removes the condition to exercising such warrants that the Company’s

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

The amendments to the Common Stock Warrants also extend the

term of such warrants for an additional one year, The foregoing amendments to the warrants are intended to cause such warrants to be accounted

for as equity instruments on the Company’s financial statements.

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 removes the condition to exercising such warrants that the Company’s shareholders approve the exercise thereof

(which has already been obtained).

The amendments to the Common Stock Warrants also extend the term of such warrants for an additional

one year, The foregoing amendments to the warrants caused such warrants to be accounted for as equity instruments on the Company’s

financial statements.

Debt Financing

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throughout this filing as the “Debt Financing”.

The net proceeds from the Credit Agreement were used to fund, in part, payment

The net proceeds from the Debt Financing were used to fund, in part, payment

of the closing cash consideration in the Merger, and the cash payable under the terms of the Retention Bonus Plan at the Closing.

On February 17, 2022,

in connection with the closing of the acquisition of Reflect, the Company issued to the representative of Reflect stockholders, RSI Exit

Corporation (“Stockholders’ Representative”), a $ 2,500 Note and Security Agreement (the “Secured Promissory Note”).

The Secured Promissory Note accrues interest at 0.59 % (the applicable federal rate) and requires the Company and Reflect to pay equal

monthly principal installments of $ 104 on the fifteenth (15th) day of each month, commencing on March 15, 2022, Any remaining or

unpaid principal is due and payable on February 17, 2023.

The Secured Promissory Note represents consideration in the Merger and

is included as part of the purchase price.

See Note 9 Loans Payable

to the Consolidated Financial Statements for an additional discussion of the Company’s debt obligations and further discussion

of the Company’s refinancing activities subsequent to December 31, 2021.

Liquidity and Financial Condition

in connection with the Closing of the Merger, the Company issued to the representative of Reflect stockholders, RSI Exit Corporation (“Stockholders’

Representative”), a $ 2,500 Note and Security Agreement (the “Secured Promissory Note”).

The Secured Promissory Note

accrues interest at 0.59 % (the applicable federal rate on the date of issuance of the Secured Promissory Note) and requires the Company

and Reflect to collectively pay equal monthly principal installments of $ 104 on the fifteenth (15th) day of each month, commencing on

March 15, 2022.

Any remaining or unpaid principal is due and payable on February 17, 2023.

The Secured Promissory Note represents

consideration in the Merger and is included as part of the purchase price.

See Note 9 Loans Payable to the Condensed Consolidated Financial

Statements for an additional discussion of the Company’s debt obligations and further discussion of the Company’s refinancing

activities subsequent to December 31, 2021.

Liquidity and Financial

The accompanying Condensed

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For the three months ended

June 30, 2022 and 2021 we have recognized net income of $ 1,262 and $ 1,025 , respectively.

For the six months ended June 30, 2022 and 2021,

September 30, 2022 and 2021, we incurred net losses of $( 554 ) and $( 343 ), respectively.

For the nine months ended September 30, 2022 and

2021, we recognized net income of $ 3,210 and $ 1,954 , respectively.

As of June 30, 2022, we had cash and cash equivalents of $ 2,840 and a working

capital surplus of $ 649 .

Management believes that,

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

(ii) our operational forecast through 2022 and 2023 following completion of the Merger, that we can continue as a going concern through

at least August 15, 2023.

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

letter from Slipstream through August 15, 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.

SUMMARY OF SIGNIFICANT ACCOUNTING

As of September 30, 2022, we had cash and cash equivalents of $ 819

and a working capital deficit of $ 487 .

Management believes that, based

on (i) securing incremental debt of $ 2,000 on October 31, 2022 (see Note 9 Loans Payable, Term Loan (2022) to the Condensed Consolidated

Financial Statements for a description of such transaction), and (ii) our operational forecast through 2023, that we can continue as a

going concern through at least November 14, 2023.

However, given our history of net losses and cash used in operating activities, we obtained

a continued support letter from Slipstream through November 14, 2023.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A summary of the significant

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commissions, incentives and payroll taxes, as these incremental and recoverable costs have terms that do not exceed one year.

Inventories are stated at the net realizable value,

determined by the first-in, first-out (FIFO) method, and consist of the following:

Inventories are stated at

the net realizable value, determined by the first-in, first-out (FIFO) method, and consist of the following:

September 30,

Raw materials, including those on consignment, net of reserve of $ 883 and $ 502 , respectively

2 unchanged sentences

Impairment of Long-Lived Assets

We review the carrying value of all long-lived

assets, including property and equipment, for impairment in accordance with ASC 360, Accounting for the Impairment or Disposal

of Long-Lived Assets .

Under ASC 360, impairment losses are recorded whenever events or changes in circumstances indicate the carrying

value of an asset may not be recoverable.

We evaluated whether there were any triggering events for consideration of impairment of long-lived

assets as of June 30, 2022 and concluded there were none.

If the impairment tests indicate that the carrying

value of the asset is greater than the expected undiscounted cash flows to be generated by such asset, an impairment loss would be recognized.

We review the carrying value

of all long-lived assets, including property and equipment, for impairment annually as of September 30 in accordance with ASC 360, Accounting

for the Impairment or Disposal of Long-Lived Assets .

Under ASC 360, impairment losses are recorded whenever events or changes

in circumstances indicate the carrying value of an asset may not be recoverable.

We evaluated whether there was any impairment of long-lived

assets as of September 30, 2022 and concluded there was none.

If the impairment tests indicate

that the carrying value of the asset is greater than the expected undiscounted cash flows to be generated by such asset, an impairment

loss would be recognized.

The impairment loss is determined as the amount by which the carrying value of such asset exceeds its fair value.

We generally measure

fair value by considering sale prices for similar assets or by discounting estimated future cash flows from such assets using an appropriate

discount rate.

Assets to be disposed of are carried at the lower of their carrying value or fair value less costs to sell.

management judgment is necessary to estimate the fair value of assets, and accordingly, actual results could vary significantly from such

Basic and Diluted Income/(Loss) per Common Share

We generally measure fair value by considering sale prices for similar assets or by discounting estimated future cash flows from such

assets using an appropriate discount rate.

Assets to be disposed of are carried at the lower of their carrying value or fair value less

costs to sell.

Considerable management judgment is necessary to estimate the fair value of assets, and accordingly, actual results could

vary significantly from such estimates.

Basic and Diluted Income/(Loss) per Common Share

for all periods presented is computed using the weighted average number of common shares outstanding.

Basic weighted average shares outstanding

includes only outstanding common shares.

Diluted weighted average shares outstanding includes outstanding common shares and potential

dilutive common shares outstanding in accordance with the treasury stock method.

Shares reserved for outstanding stock options, including

stock options with performance restricted vesting, and warrants totaling approximately 22,472,886 at June 30, 2022 were excluded from

the computation of income per share as the strike price on the options and warrants were higher than the Company’s market price

and therefore anti-dilutive.

Basic and diluted income/(loss)

per common share for all periods presented is computed using the weighted average number of common shares outstanding.

Basic weighted

average shares outstanding includes only outstanding common shares.

Diluted weighted average shares outstanding includes outstanding common

shares and potential dilutive common shares outstanding in accordance with the treasury stock method.

Shares reserved for outstanding

stock options, including stock options with performance restricted vesting, and warrants totaling approximately 22,276,807 at September

30, 2022 were excluded from the computation of income per share as the strike price on the options and warrants were higher than the Company’s

market price and therefore anti-dilutive.

Shares reserved for outstanding stock options,

including stock options with performance restricted vesting, and warrants totaling approximately 6,964,517 at June 30, 2021 were excluded

from the computation of income per share as the strike price on the options and warrants were higher than the Company’s market price

and therefore anti-dilutive.

Diluted weighted average shares outstanding for the three and six-months ended June 30, 2021 included 8,333

options which were both exercisable and in-the-money as of June 30, 2021.

Those options were included in the calculation of diluted earnings

per share as of the beginning of the calculation period.

In calculating diluted earnings per share for the

three and six months ended June 30, 2021, in accordance with ASC 260 Earnings per share , we excluded the dilutive effect of the

potential issuance of common stock upon an assumed conversion of the Convertible Loan as we had the intent and ability to settle the debt

including stock options with performance restricted vesting, and warrants totaling approximately 6,776,771 at September 30, 2021 were

excluded from the computation of income/(loss) per share as the strike price on the options and warrants were higher than the Company’s

market price and therefore anti-dilutive.

Diluted weighted average shares outstanding for the three and nine-months ended September 30,

2021 included 8,333 options which were both exercisable and in-the-money as of September 30, 2021.

Those options were included in the

calculation of diluted earnings per share as of the beginning of the calculation period.

Deferred income taxes are

8 unchanged sentences

attributes for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.

had no uncertain tax positions as of June 30, 2022 and December 31, 2021.

had no uncertain tax positions as of September 30, 2022 and December 31, 2021.

Goodwill and Intangible Assets

We follow the provisions of

ASC 350, Goodwill and Other Intangible Assets .

Pursuant to ASC 350, goodwill acquired in a purchase business combination is not amortized,

Pursuant to ASC 350, goodwill acquired in a business combination is not amortized,

but instead tested for impairment at least annually.

The Company uses an annual measurement date of September 30 (see Note 7 Intangible

Assets and Goodwill ).

The Company uses an annual measurement date of September 30 to assess impairment

of goodwill and any indefinite-lived intangible assets, or as indicators of impairment are identified (see Note 8 Intangible Assets

and Goodwill ).

Definite-lived intangible

assets are amortized straight-line in accordance with their identified useful lives.

Pursuant to ASC 350, these intangible assets are

evaluated for impairment at least annually, or as indicators of impairment are identified.

Use of Estimates

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We account for leases in accordance

with Accountings Standards Update (“ASU”) No.

2016-02, Leases (Topic 842), as amended.

We determine if an arrangement

is a lease at inception.

Right of use (“ROU”) assets and liabilities are recognized at commencement date based on the present

value of remaining lease payments over the lease term.

For this purpose, we consider only payments that are fixed and determinable at

the time of commencement.

As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information

available at commencement date in determining the present value of lease payments.

Our incremental borrowing rate is a hypothetical rate

based on our understanding of what our credit rating would be.

The ROU asset also includes any lease payments made prior to commencement

and is recorded net of any lease incentives received.

Our lease terms may include options to extend or terminate the lease when it is

reasonably certain that we will exercise such options.

We determine if an

arrangement is a lease at inception.

Right of use (“ROU”) assets and liabilities are recognized at commencement date

based on the present value of remaining lease payments over the lease term.

For this purpose, we consider only payments that are

fixed and determinable at the time of commencement.

As most of our leases do not provide an implicit rate, we use our incremental

borrowing rate based on the information available at commencement date in determining the present value of lease payments.

incremental borrowing rate is a hypothetical rate based on our understanding of what our credit rating would be and corresponding market rates at the time of lease inception.

The ROU asset also

includes any lease payments made prior to commencement and is recorded net of any lease incentives received.

Our lease terms may

include options to extend or terminate the lease when it is reasonably certain that we will exercise such options.

Operating leases are included

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Recently adopted

On January 1, 2022, we adopted early Accounting Standards Update

January 1, 2022, we adopted early Accounting Standards Update (“ASU”) No.

2021-08, Business Combinations (Topic

Accounting for Contract Assets and Contract Liabilities from Contracts

with Customers (ASU 2021-08), which clarifies that an acquirer of a business should recognize and measure contract assets and contract

liabilities in a business combination in accordance with Accounting Standards Codification (ASC) Topic 606, Revenue from Contracts

with Customers (Topic 606) .

The adoption of this new standard did not have a material impact on our condensed consolidated financial

Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (ASU 2021-08), which clarifies that

an acquirer of a business should recognize and measure contract assets and contract liabilities in a business combination in accordance

with Accounting Standards Codification (ASC) Topic 606, Revenue from Contracts with Customers (Topic 606) .

The adoption of

this new standard did not have a material impact on our condensed consolidated financial statements.

Not yet adopted

In August 2020, the FASB issued

Accounting Standards Update No.

2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and

Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40):

Accounting for Convertible Instruments and Contracts in an Entity’s

Own Equity (ASU 2020-06) , which simplifies the accounting for convertible instruments by reducing the number of accounting models

available for convertible debt instruments.

This guidance also eliminates the treasury stock method to calculate diluted earnings per

share for convertible instruments and requires the use of the if-converted method.

This guidance will be effective for us in the

first quarter of 2024 on a full or modified retrospective basis, with early adoption permitted.

In August 2020, the FASB issued Accounting Standards

2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts

in Entity’s Own Equity (Subtopic 815-40):

Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (ASU

2020-06) , which simplifies the accounting for convertible instruments by reducing the number of accounting models available for convertible

debt instruments.

This guidance also eliminates the treasury stock method to calculate diluted earnings per share for convertible instruments

and requires the use of the if-converted method.

This guidance will be effective for us in the first quarter of 2024 on a full or modified retrospective

basis, with early adoption permitted.

We do not intend to early adopt this standard, nor do we expect the adoption of this guidance to

have a material impact on our consolidated financial statements.

In June 2016, the FASB issued ASU No.

2016-13, Financial

Instruments—Credit Losses .

The main objective is to provide financial statement users with more decision-useful information

about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting

The amendments in this update replace the incurred loss methodology with a methodology that reflects expected credit losses and

requires consideration of a broader range of reasonable and supportable information to calculate credit loss estimates.

For trade receivables

and loans, entities will be required to estimate lifetime expected credit losses.

The amendments are effective for public business entities

that qualify as smaller reporting companies for fiscal years and interim periods beginning after December 15, 2022.

We are currently evaluating

the disclosure requirements and potential impact on our consolidated financial statements.

In June 2016, the FASB

issued ASU No.

2016-13, Financial Instruments—Credit Losses .

The main objective is to provide financial statement users with

more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held

by a reporting entity at each reporting date.

The amendments in this update replace the incurred loss methodology with a methodology that

reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to calculate credit

loss estimates.

For trade receivables and loans, entities will be required to estimate lifetime expected credit losses.

The amendments

are effective for public business entities that qualify as smaller reporting companies for fiscal years and interim periods beginning

after December 15, 2022.

We are currently evaluating the disclosure requirements related to adopting this guidance.

the disclosure requirements related to adopting this guidance.

REVENUE RECOGNITION

The Company applies ASC 606 for revenue recognition.

The following table disaggregates the Company’s revenue by major source for the three and six months ended June 30, 2022 and 2021:

The following table disaggregates the Company’s revenue by major source for the three and nine months ended September 30, 2022 and

(in thousands)

September 30,

Installation Services

Software Development Services

Media Services

Managed Services

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Total Hardware and Services

The italicized headers within

this footnote represent separate performance obligations the Company may sell.

When a contract includes more than one such element, the

Company bifurcates these performance obligations according to our accounting policy and separately accounts for each.

System hardware sales

System hardware revenue is

recognized generally upon shipment of the product or customer acceptance depending upon contractual arrangements with the customer.

hardware revenue is an element in a multiple-element performance obligation, including those sales in which the Company has bundled installation

services, the recognition of system hardware revenue is recognized at completion of the installation services.

Shipping charges billed

to customers are included in hardware sales and the related shipping costs are included in hardware cost of sales.

The cost of freight

and shipping to the customer is recognized in cost of sales at the time of transfer of control to the customer.

System hardware revenues

are classified as “Hardware” within our disaggregated revenue.

System hardware revenue is recognized generally

upon shipment of the product or customer acceptance, depending upon contractual arrangements with the customer in instances in which the

sale of hardware is the sole performance obligation.

Shipping charges billed to customers are included in hardware sales and the related

shipping costs are included in hardware cost of sales.

The cost of freight and shipping to the customer is recognized in cost of sales

at the time of transfer of control to the customer.

System hardware revenues are classified as “Hardware” within our disaggregated

Installation services

The Company performs outsourced

installation services for customers and recognizes revenue upon completion of the installations.

Installation services also includes engineering

services performed as part of an installation project.

When system hardware sales

include installation services to be performed by the Company, the goods and services in the contract are not distinct, so the arrangement

is accounted for as a single performance obligation.

Our customers control the work-in-process and can make changes to the design specifications

over the contract term.

Revenues are recognized over time as the installation services are completed based on the relative portion of

labor hours completed as a percentage of the budgeted hours for the installation.

The Company performs outsourced installation services

for customers and recognizes revenue upon completion of the installations.

Installation services also includes engineering services performed

as part of an installation project.

When system hardware sales include installation

services to be performed by the Company, the goods and services in the contract are not distinct, so the arrangement is accounted for

as a single performance obligation.

Our customers control the work-in-process and can make changes to the design specifications over the

contract term.

Revenues are recognized over time as the installation services are completed based on the relative portion of labor hours

completed as a percentage of the budgeted hours for the installation.

Installation services revenues are classified as “Installation

Services” within our disaggregated revenue.

The aggregate amount of the

transaction price allocated to installation service performance obligations that are partially unsatisfied as of June 30, 2022 and

2021 were $ 0 and $ 0 , respectively.

Software design and development

Software and software license

sales are recognized as revenue when a fixed fee order has been received and delivery has occurred to the customer.

Revenue is recognized

generally upon customer acceptance (point-in-time) of the software product and verification that it meets the required specifications.

Software is delivered to customers electronically.

Software design and development revenues are classified as “Software Development

Services” within our disaggregated revenue.

Software as a service

Software as a service includes

revenue from software licensing and delivery in which software is licensed on a subscription basis and is centrally hosted.

These services

often include software updates which provide customers with rights to unspecified software product upgrades and maintenance releases and

patches released during the term of the support period.

Contracts for these services are 12-36 months in length.

We account for revenue

from these services in accordance with ASC 985-20-15-5 and recognize revenue ratably over the performance period.

The aggregate amount of the transaction price allocated

to installation service performance obligations that are partially unsatisfied as of September 30, 2022 and 2021 were $ 0 and $ 35 .

Software design and development services

Software and software license sales are recognized

as revenue when a fixed fee order has been received and delivery has occurred to the customer.

Revenue is recognized generally upon customer

acceptance (point-in-time) of the software product and verification that it meets the required specifications.

Software is delivered to

customers electronically.

Software design and development revenues are classified as “Software Development Services” within

our disaggregated revenue.

Software as a service

revenues are classified as “Managed Services” within our disaggregated revenue.

Maintenance and support

The Company sells maintenance and support services, which include access

to technical support personnel for software and hardware troubleshooting and monitoring of the health of a customer’s network, access

to a sophisticated web-portal for managing the end-to-end hardware and software digital ecosystem, and hosting support services through

our network operations center, or NOC.

These services provide either physical or automated remote monitoring which support customer networks

7 days a week, 24 hours a day.

These contracts are generally

12-36 months in length and generally automatically renew for additional 12-month periods unless cancelled by the customer.

Rates for maintenance

and support contracts are typically established based upon a fee per location or fee per device structure, with total fees subject to

the number of services selected.

Software as a service includes revenue from software

licensing and delivery in which software is licensed on a subscription basis and is centrally hosted.

These services often include software

updates which provide customers with rights to unspecified software product upgrades and maintenance releases and patches released during

the term of the support period.

Contracts for these services are generally 12-36 months in length.

We account for revenue from these services

in accordance with ASC 985-20-15-5 and recognize revenue ratably over the performance period.

Software as a service revenues are classified

as “Managed Services” within our disaggregated revenue.

Maintenance and support services

The Company sells maintenance and support services

which include access to technical support personnel for software and hardware troubleshooting and monitoring of the health of a customer’s

network, access to a sophisticated web-portal for managing the end-to-end hardware and software digital ecosystem, and hosting support

services through our network operations center, or NOC.

These services provide either physical or automated remote monitoring which support

customer networks 7 days a week, 24 hours a day.

These contracts are generally 12-36 months in length

and generally automatically renew for additional 12-month periods unless cancelled by the customer.

Rates for maintenance and support

contracts are typically established based upon a fee per location or fee per device structure, with total fees subject to the number of

services selected.

Revenue is recognized ratably and evenly over the term of the agreement.

Maintenance and Support revenues

are classified as “Managed Services” within our disaggregated revenue.

The Company also performs

time and materials-based maintenance and repair work for customers.

Revenue is recognized at a point in time when the performance obligation

has been fully satisfied.

Through the Company’s

acquisition of Reflect as a result of the Merger, the Company has the capability to assist its customers with designing, deploying and

monetizing, through media services their digital advertising networks.

This is executed through both subscription agreements to programmatic

advertising content and through direct sales media agreements in which the Company sells ads on behalf of its clients to be deployed on

those client networks.

The Company and its clients operate these agreements on a revenue share basis.

Media sales activities are classified

as Services revenues.

Maintenance and Support revenues are classified

as “Managed Services” within our disaggregated revenue.

The Company also performs time and materials-based

maintenance and repair work for customers.

Revenue is recognized at a point in time when the performance obligation has been fully satisfied.

BUSINESS COMBINATION

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the Company and Reflect entered into an Agreement and Plan of Merger (as amended on as amended on February 8, 2022, the “Merger

Agreement”) pursuant to which a direct, wholly owned subsidiary of Creative Realities, CRI Acquisition Corporation, or “Merger

Sub,” would 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.” On February 17, 2022, the parties consummated

Agreement”) pursuant to which a direct, wholly owned subsidiary of the Company, CRI Acquisition Corporation, or “Merger Sub,”

would merge with and into Reflect, with Reflect becoming our wholly owned subsidiary, which transaction is referred to herein as the “Merger.”

On February 17, 2022, the parties consummated the Merger.

Reflect provides digital signage

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Note (as described below), and (iv) 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 ten (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.

February 17, 2025 (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).

The Company may exercise an

extension option (the “Extension Option”) to extend the Guarantee Date by six (6) months, from February 17, 2025 to August

17, 2025 if (i) the Extension Threshold Price is greater than or equal to 70% of the Guaranteed Price described above, and (ii) the Company

provides written notice of its election to exercise the Extension Option no later than February 7, 2025.

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 February 2, 2025.

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

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On February 17, 2022,

in connection with the closing of the Merger, the Company adopted a Retention Bonus Plan, pursuant to which the Company is required to

pay to key members of Reflect’s management team an aggregate of $1,333 in cash, which was paid 50% at the closing of the Merger

(the “Closing”), and subject to continuous employment with Reflect or Creative Realities, 25% on the one-year anniversary

of Closing and 25% on the two-year anniversary of the Closing.

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

of the Closing have been deposited into an escrow agreement.

The Retention Bonus Plan also requires the Company to issue Common Stock

having an aggregate value of $667 to the plan participants as follows:

50% of the value of such shares were issued at the Closing, and

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

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

The shares issued

on the Closing were valued at $2.00 per share, and the shares to be issued after the Closing will be determined based on dividing the

value of shares issuable on such date divided by the trailing 10-day volume weighted average price (VWAP) of the shares as of such date

as reported on the Nasdaq Capital Market.

in connection with the closing of the Merger (the “Closing”), the Company adopted a Retention Bonus Plan, pursuant to which

the Company is required to pay to key members of Reflect’s management team an aggregate of $1,333 in cash, which was paid 50% at

the Closing, and subject to continuous employment with Reflect or Creative Realities, will be paid 25% on February 17, 2023 (the one-year

anniversary of Closing) and 25% on February 17, 2024 (the two-year anniversary of the Closing).

The future cash payments due on the one-year

and two-year anniversaries of the Closing have been deposited into an escrow agreement.

The Retention Bonus Plan also requires the Company

to issue Common Stock having an aggregate value of $667 to the plan participants as follows:

50% of the value of such shares were issued

at the Closing, and subject to continuous employment with Reflect or Creative Realities, 25% of the value of such shares will be issued

on February 17, 2023 (the one-year anniversary of Closing) and the remaining 25% of the value of such shares will be issued on February

17, 2024 (the two-year anniversary of the Closing).

The shares issued on the Closing were valued at $2.00 per share, and the shares to

be issued after the Closing will be determined based on dividing the value of shares issuable on such date divided by the trailing 10-day

volume weighted average price (VWAP) of the shares as of such date as reported on the Nasdaq Capital Market.

Upon the resignation of a

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The Secured Promissory Note

accrues interest at 0.59 % (the applicable federal rate) and requires the Company and Reflect to pay equal monthly principal installments

of $ 104 on the fifteenth (15th) day of each month, commencing on March 15, 2022.

Any remaining or unpaid principal shall be due and

payable on February 17, 2023.

All payments under the Secured Promissory Note will be paid to the escrow agent in the Merger Agreement

to be placed into the escrow account to secure the Reflect stockholders’ indemnification obligations until released on the one-year

anniversary of the closing of the Merger, at which time any remaining proceeds not subject to a pending indemnification claim will be

paid to the exchange agent for payment to the Reflect Stockholders.

The obligations of the Company and Reflect set forth in the Secured

Promissory Note are secured by a first-lien security interest in various contracts of Reflect, together with all accounts arising under

such contracts, supporting obligations related to the accounts arising under such contracts, all related books and records, and products

and proceeds of the foregoing.

Slipstream subordinated its security interest in such collateral, and the recourse for any breach of the

Secured Promissory Note by the Company or Reflect will be against such collateral.

accrues interest at 0.59 % (the applicable federal rate at the time of issuance of the Secured Promissory Note) and requires the Company

and Reflect to collectively pay equal monthly principal installments of $ 104 on the fifteenth (15th) day of each month, commencing on

March 15, 2022.

Any remaining or unpaid principal shall be due and payable on February 17, 2023.

All payments under the Secured

Promissory Note will be paid to the escrow agent in the Merger Agreement to be placed into the escrow account to secure the former Reflect

stockholders’ indemnification obligations until released on February 17, 2023 (the one-year anniversary of the closing of the Merger),

at which time any remaining proceeds not subject to a pending indemnification claim will be paid to the exchange agent for payment to

the former Reflect stockholders.

The obligations of the Company and Reflect set forth in the Secured Promissory Note are secured by a

first-lien security interest in various contracts of Reflect, together with all accounts arising under such contracts, supporting obligations

related to the accounts arising under such contracts, all related books and records, and products and proceeds of the foregoing.

subordinated its security interest in such collateral, and the recourse for any breach of the Secured Promissory Note by the Company or

Reflect will be against such collateral.

The preliminary purchase price

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Cash consideration for Retention Bonus Plan

Common stock issued to Reflect shareholders

Common stock issued to Reflect stockholders

Common stock issued to Retention Bonus Plan

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Net consideration transferred

Cash consideration for outstanding shares of Reflect capital stock per Merger Agreement.

Cash consideration utilized to fund the Retention Bonus Plan per Merger Agreement.

Company common stock issued in exchange for outstanding shares of Reflect capital stock per Merger Agreement.

consideration for outstanding shares of Reflect capital stock per Merger Agreement.

consideration utilized to fund the Retention Bonus Plan per Merger Agreement.

common stock issued in exchange for outstanding shares of Reflect capital stock per Merger Agreement.

Company common stock issued to fund the Retention Bonus Plan per Merger Agreement.

(5) The Secured Promissory Note accrues interest at 0.59 % (the applicable federal rate) and requires the Company and Reflect to pay equal monthly principal installments of $ 104 on the fifteenth (15th) day of each month, commencing on March 15, 2022.

(5) The Secured Promissory Note accrues interest at 0.59 % (the applicable federal rate at the time of issuance of the Secured Promissory Note) and requires the Company and Reflect to collectively pay equal monthly principal installments of $ 104 on the fifteenth (15th) day of each month, commencing on March 15, 2022.

Any remaining or unpaid principal shall be due and payable on February 17, 2023.

(6) Represents an estimate of the fair value of the Guaranteed Consideration as of the Merger, which, if any, is payable on or after the three-year anniversary of the effective time of the Merger (subject to the Extension Option), 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), subject to the terms of the Merger Agreement.

During the three months ended June 30, 2022, the Company’s third party specialist completed valuation of this contingent liability as of the opening balance sheet date, resulting in a measurement period adjustment recorded to increase goodwill and the contingent liability as of February 17, 2022 by $ 5,262 .

(7) Prior to the Merger, Reflect

had engaged the Company on a project and paid the Company a deposit of $ 818 .

These amounts reduced consideration paid by the Company

in accordance with ASC 805.

(6) Represents an estimate of the fair value of the Guaranteed Consideration as of the Merger, which, if any, is payable on or after February 17, 2025 (subject to the Extension Option), 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), subject to the terms of the Merger Agreement.

During the nine months ended September 30, 2022, the Company’s third party specialist completed valuation of this contingent liability as of the opening balance sheet date, resulting in a measurement period adjustment recorded to increase goodwill and the contingent liability as of February 17, 2022 by $ 5,262 .

(7) Prior to the Merger, Reflect had engaged the Company on a project and paid the Company a deposit of $ 818 .

These amounts reduced consideration paid by the Company in accordance with ASC 805.

Represents the Reflect cash balance acquired at Closing.

The Company incurred $ 16 and

$ 428 of direct transaction costs for the three and six months ended June 30, 2022, respectively.

These costs are included in deal and

transaction expense in the accompanying Condensed Consolidated Statement of Operations.

$ 444 of direct transaction costs related to the Reflect Merger for the three and nine months ended September 30, 2022, respectively.

costs are included in deal and transaction expense in the accompanying Condensed Consolidated Statement of Operations.

The Company accounted for

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The components of the preliminary purchase

price allocation, inclusive of measurement period adjustments recorded by the Company during the six months ended June 30, 2022, are as

price allocation, inclusive of measurement period adjustments recorded by the Company during the nine months ended September 30, 2022,

are as follows:

(in thousands)

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Operating right of use assets

Deferred tax assets, net of valuation allowance

Identified intangible assets:

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party valuation specialist to assist in the identification and calculation of the fair value of those separately identifiable intangible

Based on an initial draft valuation report, a measurement period adjustment reducing the value of these intangible assets by $ 4,340

as of the opening balance sheet date, with a corresponding increase in goodwill, was recorded in the three months ended June 30, 2022.

A related adjustment to reduce amortization expense by $ 180 for the three months ended March 31, 2022 was recorded as a period expense

in the three months ended June 30, 2022.

The Company remains in process of reviewing the valuation report and finalizing its opening balance

sheet accounting.

assets and recorded those assets based on an initial draft valuation report.

The Company remains in process of reviewing the valuation

report and finalizing its opening balance sheet accounting.

The Company completed its

valuation procedures by asset utilizing the following approaches:

relationship asset was estimated using the income approach through a discounted cash flow analysis wherein the cash flows will be based

on estimates used to price the Merger.

Discount rates were benchmarked with reference to the implied rate of return from the Company’s

pricing model and the weighted average cost of capital.

name asset represents the “Reflect” brand name as marketed primarily as a full services digital software solution, marketed

in numerous verticals with the exception of food service.

The Company applied the income approach through an excess earnings analysis

to determine the fair value of the trade name asset.

The Company applied the income approach through a relief-from-royalty analysis to

determine the fair value of this asset.

developed technology assets are primarily comprised of know-how and functionality embedded in Reflect’s proprietary content management

applications, which drive currently marketed products and services.

The Company applied the income approach through a relief-from-royalty

analysis to determine the preliminary fair value of this asset.

Customer relationship asset was estimated using the income approach through a discounted cash flow analysis wherein the cash flows will be based on estimates used to price the Merger.

Discount rates were benchmarked with reference to the implied rate of return from the Company’s pricing model and the weighted average cost of capital.

Trade name asset represents the “Reflect” brand name as marketed primarily as a full services digital software solution, marketed in numerous verticals with the exception of food service.

The Company applied the income approach through an excess earnings analysis to determine the fair value of the trade name asset.

The Company applied the income approach through a relief-from-royalty analysis to determine the fair value of this asset.

The developed technology assets are primarily comprised of know-how and functionality embedded in Reflect’s proprietary content management applications, which drive currently marketed products and services.

The Company applied the income approach through a relief-from-royalty analysis to determine the preliminary fair value of this asset.

The Company is amortizing

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(in thousands, except earnings per common share)

Net income/(loss)

Earnings per common share

(in thousands)

Net income/(loss)

The information above does

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by the Company have prevented this information from being useful to financial statement readers.

Reflect Systems, Inc.

(in thousands)

September 30,

Net income/(loss)

FAIR VALUE MEASUREMENT

We measure certain financial

assets, including cash equivalents, at fair value on a recurring basis.

In accordance with ASC 820-10-30, fair value is a market-based

measurement that should be determined based on the assumptions that market participants would use in pricing an asset or liability.

a basis for considering such assumptions, ASC 820-10-35 establishes a three-level hierarchy that prioritizes the inputs used in measuring

The three hierarchy levels are defined as follows:

Level 1 — Valuations

based on unadjusted quoted prices in active markets for identical assets.

Level 2 — Valuations

based on observable inputs (other than Level 1 prices), such as quoted prices for similar assets at the measurement date;

quoted prices

in markets that are not active;

We measure certain financial assets, including

cash equivalents, at fair value on a recurring basis.

In accordance with ASC 820-10-30, fair value is a market-based measurement that

should be determined based on the assumptions that market participants would use in pricing an asset or liability.

As a basis for considering

such assumptions, ASC 820-10-35 establishes a three-level hierarchy that prioritizes the inputs used in measuring fair value.

hierarchy levels are defined as follows:

Level 1 — Valuations based on unadjusted

quoted prices in active markets for identical assets.

Level 2 — Valuations based on observable

inputs (other than Level 1 prices), such as quoted prices for similar assets at the measurement date;

quoted prices in markets that are

or other inputs that are observable, either directly or indirectly.

Level 3 — Valuations

based on inputs that are unobservable and involve management judgment and the reporting entity’s own assumptions about market participants

Level 3 — Valuations based on inputs that

are unobservable and involve management judgment and the reporting entity’s own assumptions about market participants and pricing.

As discussed in Note 5 Business

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of future financial performance which are unobservable and involve management judgment and are considered Level 3 estimates.

As discussed in Note 8 Intangible

Assets, Including Goodwill , the calculation of the weighted average cost of capital and management’s forecast of future financial

performance utilized within our discounted cash flow model for the impairment of goodwill contains inputs which are unobservable and involve

management judgment and are considered Level 3 estimates.

As discussed in Note 8 Intangible Assets,

Including Goodwill , the calculation of the weighted average cost of capital and management’s forecast of future financial performance

utilized within our discounted cash flow model for the impairment of goodwill contains inputs which are unobservable and involve management

judgment and are considered Level 3 estimates.

As discussed in Note 9 Loans

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SUPPLEMENTAL CASH FLOW STATEMENT INFORMATION

Six Months Ended

Nine Months Ended

September 30,

Supplemental Cash Flow Information

Investing activities not yet paid in cash:

Capitalized software in accounts payable

Cash paid during the period for:

Income taxes, net

Supplemental disclosure of non-cash financing activities:

Conversion of liability warrants to equity warrants

INTANGIBLE ASSETS, INCLUDING GOODWILL

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Intangible assets consisted

of the following at June 30, 2022 and December 31, 2021:

of the following at September 30, 2022 and December 31, 2021:

September 30,

Technology platform

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in Note 5 Business Combinations .

The resulting amortization expense charged to operations during the three months ended March 31,

2022 was $ 680 .

Both the intangible assets and the related amortization expense related to the Merger which were recorded during the three

months ended March 31, 2022 represented estimates.

For the three months ended June 30, 2022 and 2021,

amortization of intangible assets charged to operations was $ 431 and $ 139 , respectively.

For the six months ended June 30, 2022 and 2021

amortization of intangible assets charged to operations was $ 1,111 and $ 279 , respectively.

For the three months ended

September 30, 2022 and 2021, amortization of intangible assets charged to operations was $ 848 and $ 139 , respectively.

For the nine months

ended September 30, 2022 and 2021 amortization of intangible assets charged to operations was $ 1,959 and $ 418 , respectively.

Goodwill represents the excess

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Therefore, the entire goodwill is allocated to that reporting unit.

While the Company completes

its annual assessment of impairment as of September 30, we evaluate qualitative indicators during other interim periods that may be indicative

of impairment and require further quantitative assessments.

During the three and six months ended June 30, 2022, the Company experienced

a significant decline in its common share price and overall market capitalization, which is below book value as of June 30, 2022.

this decline in market capitalization to be an indicator of a potential impairment of the Company’s recorded investment in its intangible

assets and goodwill.

We evaluated certain facts and circumstances which management believes are responsible for the disparity between

our market capitalization and the book value of our equity as of June 30, 2022.

The Company assessed the carrying value of goodwill

at the reporting unit level based on an estimate of the fair value of its reporting unit.

Fair value of the reporting unit was estimated

using both (1) a market approach, leveraging recent industry merger and acquisition activity as well as comparable public company information,

and (2) a discounted cash flow analyses consisting of various assumptions, including expectations of future cash flows based on projections

or forecasts derived from analysis of business prospects and economic or market trends that may occur, specifically, the Company gave

significant consideration to actual historic financial results, including revenue growth rates in the current and preceding three years,

further informed by known backlog and customer acquisitions.

Based on the Company’s assessment, we determined that the fair value

of our reporting unit exceeds its carrying value, and accordingly, the goodwill associated with the reporting unit is not considered to

be impaired at September 30, 2022.

The Company recognizes that any changes in our

actual fourth quarter 2022 or projected 2023 results could potentially have a material impact on our assessment of goodwill impairment.

The Company will continue to monitor the actual performance of its operations against expectations and assess indicators of possible impairment.

The valuation of goodwill and intangible assets is subject to a high degree of judgment, uncertainty and complexity.

Should any indicators

of impairment occur in subsequent periods, the Company will be required to perform an analysis in order to determine whether goodwill

While our overall

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We do not believe these factors are consistent with or reflective of the underlying value of the business, and there

were no other indicators of potential impairment as of June 30, 2022.

Should our market price remain at this level for an extended

period of time, there could be potential future impairment.

Based on the relatively recent decline in our share price and market

capitalization, along with improving Company fundamentals following our Merger with Reflect and a share price that was substantially higher

upon announcing that Merger mere months ago, we believe our implied fair value continues to exceed our total carrying value.

no other indications of impairment as of June 30, 2022.

were no other indicators of potential impairment as of September 30, 2022.

Should our market price remain at this level for an

extended period of time, however there could be potential future impairment.

Based on the relatively recent

decline in our share price and market capitalization, along with improving Company fundamentals following our Merger with Reflect and

a share price that was substantially higher upon announcing that Merger mere months ago, we believe our implied fair value continues to

exceed our total carrying value.

There were no other indications of impairment as of September 30, 2022.

LOANS PAYABLE

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Further discussion of the debt follows.

As of June 30, 2022

As of September 30, 2022

Interest Rate Information

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cash interest per annum through maturity at February 15, 2025.

(4) Interest was paid-in-kind (“PIK”) through October 2021, at which point interest became payable in cash at the stated interest rates through maturity.

SBA Paycheck Protection Program Loan

On April 27, 2020, the

Company entered into a Promissory Note with Old National Bank (the “Promissory Note”), which provided for an unsecured loan

of $1,552 (the “PPP Loan”) pursuant to the Paycheck Protection Program under the Coronavirus Aid, Relief, and Economic Security

Act and applicable regulations (the “CARES Act”).

The Promissory Note had a term of two years with a 1% per annum interest

On January 11, 2021, the

Company received a notice from Old National Bank that 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.

was paid-in-kind (“PIK”) through October 2021, at which point interest became payable in cash at the stated interest

rates through maturity.

SBA Paycheck Protection Program

April 27, 2020, the Company entered into a Promissory Note with Old National Bank (the “Promissory Note”), which provided

for an unsecured loan of $1,552 (the “PPP Loan”) pursuant to the Paycheck Protection Program under the Coronavirus Aid, Relief,

and Economic Security Act and applicable regulations (the “CARES Act”).

The Promissory Note had a term of two years with a

1% per annum interest rate.

January 11, 2021, the Company received a notice from Old National Bank that the full principal amount of the PPP Loan and the accrued

interest have been forgiven, resulting in a gain of $1,552 during the nine months ended September 30, 2021.

Secured Promissory Note

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The Secured Promissory Note

accrues interest at 0.59 % per annum (the applicable federal rate) and requires the Company and Reflect to pay equal monthly principal

installments of $ 104 on the fifteenth (15th) day of each month, commencing on March 15, 2022.

Any remaining or unpaid principal shall

be due and payable on February 17, 2023.

All payments under the Secured Promissory Note will be paid to the escrow agent in the Merger

Agreement to be placed into the escrow account to secure the Reflect stockholders’ indemnification obligations until released on

the one-year anniversary of the closing of the Merger, at which time any remaining proceeds not subject to a pending indemnification claim

will be paid to the exchange agent for payment to the Reflect Stockholders.

The Secured Promissory Note is secured by a first-lien security

interest in certain contracts of Reflect, including obligations arising out of those certain contracts..

The Company has the right to

offset amounts payable under the Secured Promissory Note upon a final, non-appealable decision of a court that entitles the Company or

its affiliates to any damages for indemnification under the Merger Agreement, or the Stockholders’ Representative’s agreement

in writing to such damages.

Second Amended and Restated Loan and Security Agreement

accrues interest at 0.59 % per annum (the applicable federal rate on the date of issuance of the Secured Promissory Note) and requires

the Company and Reflect to collectively pay equal monthly principal installments of $ 104 on the fifteenth (15th) day of each month, commencing

on March 15, 2022.

Any remaining or unpaid principal shall be due and payable on February 17, 2023.

All payments under the Secured

Promissory Note will be paid to the escrow agent in the Merger Agreement to be placed into the escrow account to secure the Reflect stockholders’

indemnification obligations until released on February 17, 2023 (the one-year anniversary of the closing of the Merger), at which time

any remaining proceeds not subject to a pending indemnification claim will be paid to the exchange agent for payment to the Reflect Stockholders.

The Secured Promissory Note is secured by a first-lien security interest in certain contracts of Reflect, including obligations arising

out of those certain contracts..

The Company has the right to offset amounts payable under the Secured Promissory Note upon a final, non-appealable

decision of a court that entitles the Company or its affiliates to any damages for indemnification under the Merger Agreement, or the

Stockholders’ Representative’s agreement in writing to such damages.

Second Amended and Restated Loan

and Security Agreement

On February 17, 2022,

Creative Realities, Inc.

(the “Company”) and its subsidiaries (collectively, the “Borrowers”) refinanced their

current debt facilities with Slipstream Communications, LLC (“Slipstream”), pursuant to a Second Amended and Restated Credit

and Security Agreement (the “Credit Agreement”).

the Company and its subsidiaries (collectively, the “Borrowers”) refinanced their debt facilities with Slipstream Communications,

LLC (“Slipstream”), pursuant to a Second Amended and Restated Credit and Security Agreement (the “Credit Agreement”).

The Borrowers include Reflect Systems, Inc.

(“Reflect”), which

became a wholly owned subsidiary of the Company as a result of the closing of the Merger on February 17, 2022.

The debt facilities

continue to be fully secured by all assets of the Borrowers.

(“Reflect”), which became a wholly owned subsidiary of the Company as a result

of the closing of the Merger on February 17, 2022.

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

The Credit Agreement also

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No principal payments on the Acquisition Loan are payable until the Maturity

In connection with the Acquisition

Loan and Consolidation Term Loan warrant coverage, the Company issued to Slipstream a warrant to purchase an aggregate of 5,194,495 shares

of Company common stock (the “Lender Warrant”).

The Lender Warrant has a five-year term, an initial exercise price of $ 2.00

per share, subject to adjustments in the Lender Warrant, and is not exercisable until August 17, 2022.

The warrants were assessed

in accordance with ASC 470 and ASC 815 Derivatives and were deemed to represent bifurcated derivative instruments that should be

recorded as liabilities in the Condensed Consolidated Balance Sheets.

The Company performed a Black-Scholes valuation of the warrants

as of the issuance date, resulting in a fair value of $ 0.8129 per warrant.

In recording the warrant liability, the Company recorded a

debt discount associated with each of the Acquisition and Consolidation Term Loans in an amount of $ 2,032 and $ 2,190 , respectively.

amounts are being amortized straight-line through interest expense over the life of the loans, resulting in incremental interest expense

of $ 166 and $ 525 during the three and six months ended June 30, 2022, respectively.

The Company has deemed straight-line amortization

to be materially consistent with the effective interest method.

In connection with the Acquisition Loan and Consolidation Term Loan

warrant coverage, the Company issued to Slipstream a warrant to purchase an aggregate of 5,194,495 shares of Company common stock (the

“Lender Warrant”).

The Lender Warrant has a five-year term, an initial exercise price of $ 2.00 per share, subject to adjustments

in the Lender Warrant, and is not exercisable until August 17, 2022.

The warrants were assessed in accordance with ASC 470 and ASC

815 Derivatives and were deemed to represent bifurcated derivative instruments that should be recorded as liabilities in the Condensed

Consolidated Balance Sheets.

The Company performed a Black-Scholes valuation of the warrants as of the issuance date, resulting in a fair

value of $ 0.8129 per warrant.

In recording the warrant liability, the Company recorded a debt discount associated with each of the Acquisition

and Consolidation Term Loans in an amount of $ 2,032 and $ 2,190 , respectively.

These amounts are being amortized straight-line through

interest expense over the life of the loans, resulting in incremental interest expense of $ 363 and $ 904 during the three and nine months

ended September 30, 2022, respectively.

The Company has deemed straight-line amortization to be materially consistent with the effective

interest method.

In certain circumstances,

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The foregoing amendments to

the Lender Warrant were intended to cause such warrants to be accounted for as equity instruments on the Company’s financial statements.

the Lender Warrant such warrants to be accounted for as equity instruments on the Company’s financial statements.

Loan and Security Agreement

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Upon entry into an amendment to the Loan and Security Agreement on March 7,

2021, this note was converted into Disbursed Escrow Conversion Shares, with elimination of the debt recorded as an equity issuance with

the Statement of Shareholders Equity during the three months ended March 31, 2021.

2021, this note was converted into Disbursed Escrow Conversion Shares, with elimination of the debt recorded as an equity issuance within

the Statement of Shareholders Equity during the nine months ended September 30, 2021.

Term Loan (2022)

On October 31, 2022, the Borrowers and Slipstream amended the Credit

Agreement to provide the Borrowers with a $ 2,000 term loan, the net proceeds of which are being used by the Company to accelerate an active

software development project with potential to expand SaaS revenues associated with an existing customer.

The term loan has an annual

interest rate of 12.5% and matures on September 1, 2023.

Commencing on February 1, 2023, the Borrowers will make monthly installment payments

of approximately $270 until the maturity date, consisting of principal and interest sufficient to fully amortize the term loan through

the maturity date.

COMMITMENTS AND CONTINGENCIES

On August 2, 2019, the

Company filed suit in Jefferson Circuit Court, Kentucky, against a supplier of Allure for breach of contract, breach of warranty, and

negligence with respect to equipment installations performed by such supplier for an Allure customer.

This case remains in the early stages

of litigation, in part due to delays resulting from the COVID-19 pandemic, and, as a result, the outcome of each case is unclear, so the

Company is unable to reasonably estimate the possible recovery, or range of recovery, if any.

Company filed suit in Jefferson Circuit Court, Kentucky, against a supplier of the Company’s wholly owned subsidiary, Allure Global

Solutions, Inc.

(“Allure”) for breach of contract, breach of warranty, and negligence with respect to equipment installations

performed by such supplier for an Allure customer.

Due to delays on account of the COVID-19 pandemic, this case remains in the early stages

of litigation, and, as a result, the outcome of each case is unclear, so the Company is unable to reasonably estimate the possible recovery,

or range of recovery, if any.

On October 10, 2019,

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The suits filed by and against Allure have been adjoined in the Jefferson Circuit Court, Kentucky in January 2020.

As a result of

court delays as a result of the COVID-19 pandemic, this suit remains in the early stages of litigation with discovery requests ongoing,

and, as a result, the outcome of the suit and the allocation of liability, if any, remain unclear.

The Company is unable to reasonably

estimate the possible liability, recovery, or range of magnitude for either the liability or recovery, if any, at the time of this filing.

An attempt to

mediate the litigation is in process as of the filing date of this Report.

The Company has notified its

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There were no individually material settlements

during the six months ended June 30, 2022.

During the six months ended June 30, 2021, (i)

the full principal amount of the PPP Loan and the accrued interest of $ 1,552 were forgiven and recorded as a gain on settlement, and (ii)

the Company settled the Amended and Restated Seller Note and related accrued interest for $ 100 , recording a gain on settlement 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.

during the nine months ended September 30, 2022.

During the nine months ended

September 30, 2021, (i) the full principal amount of the PPP Loan and the accrued interest of $ 1,552 were forgiven and recorded as a gain

on settlement, (ii) the Company settled repayment obligations tied to an Amended and Restated Seller Note (the “Seller Note”)

and related accrued interest for $ 100 , recording a gain on settlement of $ 1,624 , representing $ 1,538 related to the Seller Note and $ 86

of related interest thereon, and (iii) the statute of limitations passed related to the remaining liability on a lease abandoned by the

Company in 2015, resulting in a gain of $256.

Our deferred tax assets are

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with a definite life.

As of June 30, 2022, we reported

tax liability of $ 0 .

As of June 30, 2022, the net deferred tax assets totaled $ 0 after valuation allowance, consistent with December 31,

As of September 30, 2022,

we reported tax liability of $ 0 .

As of September 30, 2022, the net deferred tax assets totaled $ 0 after valuation allowance, consistent

with December 31, 2021.

A summary of outstanding warrants is included below:

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( 5,851,505 )

Warrants expired

Warrants reclassified

Balance June 30, 2022

Balance September 30, 2022

Warrants (Liability)

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Warrants reclassified

( 13,761,000 )

Balance June 30, 2022

Balance September 30, 2022

On February 3, 2022,

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the fair value of these warrants via Black Scholes valuation methodology and determined that the fair value of these warrants was $ 0.4019

per warrant, resulting in the Company recording a gain on the fair value of these warrants of $ 1,287 and $ 4,951 in the Condensed Consolidated

Statement of Operations for the three and six months ended June 30, 2022, respectively.

per warrant, resulting in the Company recording a gain on the fair value of these warrants of $ 4,951 in the Condensed Consolidated

Statement of Operations for the nine months ended September 30, 2022, respectively.

On February 17, 2022,

in connection with the restructured Credit Agreement with Slipstream, the Company issued 5,194,495 warrants with an exercise price of

in connection with the Credit Agreement with Slipstream, the Company issued to Slipstream 5,194,495 warrants with an exercise price of

$ 2.00 per share, which expire five years from the date of issuance (the “Lender Warrant”).

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the fair value of these warrants via Black Scholes valuation methodology and determined that the fair value of these warrants was $ 0.3699

per warrant, resulting in the Company recording a gain on the fair value of these warrants of $ 894 and $ 2,302 in the Condensed Consolidated

Statement of Operations for the three and six months ended June 30, 2022, respectively.

per warrant, resulting in the Company recording a gain on the fair value of these warrants of $ 2,302 in the Condensed Consolidated

Statement of Operations for the nine months ended September 30, 2022, respectively.

On February 17, 2022,

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fair value of the Purchase Warrant via Black Scholes valuation methodology and determined that the fair value of the Purchaser Warrant

was $ 0.4017 per warrant, resulting in the Company recording a gain on the fair value of the Purchaser Warrant of $ 252 and $ 650 in the

Condensed Consolidated Statement of Operations for the three and six months ended June 30, 2022, respectively.

was $ 0.4017 per warrant, resulting in the Company recording a gain on the fair value of the Purchaser Warrant of $ 650 in the

Condensed Consolidated Statement of Operations for the nine months ended September 30, 2022, respectively.

June 30, 2022, the Company amended the terms of the Common Stock Warrant ( 7,166,505 warrants), Lender Warrant ( 5,194,495 warrants) and

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Stock, Lender and Purchaser Warrants, resulting in the Company recording a loss on the fair value of these warrants of $ 345 in the Condensed

Consolidated Statement of Operations for the three months ended June 30, 2022.

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.

Consolidated Statement of Operations for the nine months ended September 30, 2022.

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

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noncurrent liabilities to additional paid-in-capital as of June 30, 2022.

These amounts are reflected as additional paid-in-capital

in the Condensed Consolidated Balance Sheet as of September 30, 2022.

STOCK-BASED COMPENSATION

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Time Vesting Options

Performance Vesting Options

Performance Vesting

Date/Activity

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Forfeited or expired

Balance, June 30, 2022

Balance, September 30, 2022

The weighted average remaining contractual life

for options exercisable is 7.25 years as of June 30, 2022.

for options exercisable is 7.0 years as of September 30, 2022.

Valuation Information for Stock-Based Compensation

For purposes of determining estimated fair value

under FASB ASC 718-10, Stock Compensation , the Company computed the estimated fair values of stock options using the Black-Scholes

For purposes of determining

estimated fair value under FASB ASC 718-10, Stock Compensation , the Company computed the estimated fair values of stock options

using the Black-Scholes model.

Amendment to Performance

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2022 approved budget, which

excludes any impact on EBITDA of:

any impact on EBITDA of:

(a) the accounting

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(as described below) (collectively, the “EBITDA Calculations”).

The exercise price of the foregoing options is

$ 2.53 per share, the closing price of the Company’s common stock on the date of issuance.

The options were issued from the 2014

Stock Incentive Plan.

The fair value of the options on the grant date was $ 1.87 and was determined using the Black-Scholes model.

values were calculated using the same weighted average assumptions as the time vesting options issued.

Performance against the identified

EBITDA target is assessed quarterly by the Company in order to determine whether any compensation expense should be recorded.

During the three and six months

ended June 30, 2022, the Company deemed it probable that the Company would achieve the EBITDA target for calendar year 2022 and recorded

compensation expense in the Consolidated Statement of Operations with respect to these awards of $ 175 and $ 400 , respectively, net of a

benefit of $ 50 recorded for forfeiture of awards.

The remaining awards have not yet vested and are subject to actual results for the full

calendar year 2022.

Should this target not be achieved, amounts recorded as expense in the Condensed Consolidated Statement of Operations

would be reversed.

The exercise price of the

foregoing options is $ 2.53 per share, the closing price of the Company’s common stock on the date of issuance.

The options were

issued from the 2014 Stock Incentive Plan.

The fair value of the options on the grant date was $ 1.87 and was determined using the Black-Scholes

These values were calculated using the same weighted average assumptions as the time vesting options issued.

Performance against

the identified EBITDA target is assessed quarterly by the Company in order to determine whether any compensation expense should be recorded.

During the three and

nine months ended September 30, 2022, the Company deemed it probable that the Company would achieve the EBITDA target for calendar

year 2022 and recorded compensation expense in the Condensed Consolidated Statement of Operations with respect to these awards of

$ 225 and $ 624 , respectively, net of a benefit of $ 50 recorded for forfeiture of awards for the nine months ended September 30, 2022.

The remaining awards have not yet vested

and are subject to actual results for the full calendar year 2022.

Should this target not be achieved, amounts recorded as expense

in the Condensed Consolidated Statement of Operations would be reversed.

Issuance of New Options

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Share Price Targets

Guaranteed Price

Mills Shares Vested

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An additional 300,000 options with identical market vesting

restrictions were issued to non-executives during the three months ended June 30, 2022.

restrictions were issued to non-executives during the nine months ended September 30, 2022.

The fair value of the options

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Dividend yield

At June 30, 2022, the Company evaluated the probability

of achieving the share price targets in each tranche based, in part, on work performed by the Company’s third party valuation specialist

in conjunction with evaluating the equity guarantee contingent liability.

As a result of that evaluation of probability, during the three

months ended June 30, 2022 the Company recorded $ 1 of compensation expense.

These awards have not yet vested and are subject to actual

share price performance through February 2025.

Should any target not be achieved, any amounts recorded as expense in the Condensed Consolidated

Statement of Operations related to that tranche would be reversed.

At September 30, 2022, the Company evaluated the probability of achieving

the share price targets in each tranche based, in part, on work performed by the Company’s third party valuation specialist in conjunction

with evaluating the equity guarantee contingent liability.

As a result of that evaluation of probability, during the three and nine months

ended September 30, 2022 the Company recorded $ 3 and $ 4 of compensation expense, respectively.

These awards have not yet vested and are

subject to actual share price performance through February 2025.

Should any target not be achieved, any amounts recorded as expense in

the Condensed Consolidated Statement of Operations related to that tranche would be reversed.

Stock Compensation Expense Information

ASC 718-10, Stock Compensation , requires measurement and recognition

of compensation expense for all stock-based payments including warrants, stock options, restricted stock grants and stock bonuses based

on estimated fair values.

Under the Amended and Restated 2006 Equity Incentive Plan, the Company reserved 1,720,000 shares for purchase

by the Company’s employees and under the Amended and Restated 2006 Non-Employee Director Stock Option Plan the Company reserved

700,000 shares for purchase by the Company’s employees.

There are 12,001 options outstanding under the 2006 Equity Incentive Plan.

In October 2014, the Company’s shareholders

approved the 2014 Stock Incentive Plan, under which 7,390,355 shares were reserved for purchase by the Company’s employees.

2018, a special meeting of shareholders was held in which the shareholders voted to amend the Company’s 2014 Stock Incentive Plan

to increase the reserve of shares authorized for issuance thereunder, from 7,390,355 shares to 18,000,000 shares.

ASC 718-10, Stock Compensation ,

requires measurement and recognition of compensation expense for all stock-based payments including warrants, stock options, restricted

stock grants and stock bonuses based on estimated fair values.

Under the Amended and Restated 2006 Equity Incentive Plan, the Company

reserved 1,720,000 shares for purchase by the Company’s employees and under the Amended and Restated 2006 Non-Employee Director

Stock Option Plan the Company reserved 700,000 shares for purchase by the Company’s employees.

There are 12,001 options outstanding

under the 2006 Equity Incentive Plan.

In October 2014, the Company’s

shareholders approved the 2014 Stock Incentive Plan, under which 7,390,355 shares were reserved for purchase by the Company’s employees.

In August 2018, a special meeting of shareholders was held in which the shareholders voted to amend the Company’s 2014 Stock Incentive

Plan to increase the reserve of shares authorized for issuance thereunder, from 7,390,355 shares to 18,000,000 shares.

Following a 1-for-30

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Employee Awards

Compensation expense recognized for the issuance

of stock options, inclusive of performance-restricted stock options, for the three and six months ended June 30, 2022 of $ 398 and $ 948 ,

respectively, was included in general and administrative expense in the Condensed Consolidated Financial Statements.

Compensation expense

recognized for the issuance of stock options, inclusive of performance-restricted stock options, for the three and six months ended June

30, 2021 of $ 356 and $ 895 , respectively, was included in general and administrative expense in the Condensed Consolidated Financial Statements.

Amounts recorded include stock compensation expense for awards granted to directors of the Company in exchange for services at fair value.

As of June 30, 2022, there was approximately $ 971

and $ 930 of total unrecognized compensation expense related to unvested share-based employee awards with time vesting and performance

vesting criteria, respectively.

As of June 30, 2021, there was approximately $ 1,861 and $ 1,157 of total unrecognized compensation expense

related to unvested share-based awards with time vesting and performance vesting criteria, respectively.

Generally, expense related to

the time vesting options will be recognized over the next two- and one-half years and will be adjusted for any future forfeitures as they

Compensation expense related to performance vesting options will be recognized if it becomes probable that the Company will achieve

the identified performance metrics.

Non-Employee Awards

The Company engages certain consultants to perform

services in exchange for Company common stock.

Shares issued for services were calculated based on the ten (10) day volume weighted average

price (“VWAP”) for the last ten (10) days during the month of service provided.

During the three and six months ended June 30,

2022, the Company issued or accrued shares issuable in exchange for services in the amount of $ 45 and $ 70 , respectively.

During the three

and six months ended June 30, 2021, the Company issued or accrued shares issuable in exchange for services in the amount of $ 40 and $ 40 ,

Compensation expense recognized

for the issuance of stock options, inclusive of stock options subject to both performance and market conditions for vesting, for the three

and nine months ended September 30, 2022 of $ 538 and $ 1,487 , respectively, was included in general and administrative expense in the Condensed

Consolidated Financial Statements.

Compensation expense recognized for the issuance of stock options, inclusive of stock options subject

to both performance and market conditions for vesting, for the three and nine months ended September 30, 2021 of $ 331 and $ 1,177 , respectively,

was included in general and administrative expense in the Condensed Consolidated Financial Statements.

Amounts recorded include stock

compensation expense for awards granted to directors of the Company in exchange for services at fair value.

As of September 30, 2022,

there was approximately $ 685 , $ 477 , and $ 225 of total unrecognized compensation expense related to unvested share-based employee awards

with time vesting, market, and performance vesting criteria, respectively.

As of September 30, 2021, there was approximately $ 1,609 and

$ 1,078 of total unrecognized compensation expense related to unvested share-based awards with time vesting and performance vesting criteria,

respectively.

Generally, expense related to the time vesting options will be recognized over the next two- and one-half years and will

be adjusted for any future forfeitures as they occur.

Compensation expense related to performance vesting options will be recognized if

it becomes probable that the Company will achieve the identified performance metrics.

Non-Employee Awards

The Company engages certain

consultants to perform services in exchange for Company common stock.

Shares issued for services were calculated based on the ten (10)

day volume weighted average price (“VWAP”) for the last ten (10) days during the month of service provided.

During the three and nine months ended September 30, 2022, the Company

issued or accrued shares issuable in exchange for services in the amount of $ 30 and $ 100 , respectively.

During the three and nine months

ended September 30, 2021, the Company issued or accrued shares issuable in exchange for services in the amount of $ 30 and $ 70 , respectively.

SIGNIFICANT CUSTOMERS/VENDORS

Significant Customers

We had one ( 1 ) and two ( 2 )

customers that in the aggregate accounted for 25.7 % and 41.1 % of accounts receivable as of June 30, 2022 and December 31, 2021, respectively.

We had two ( 2 ) and three ( 3 ) customers that accounted

for 37.5 % and 44.0 % of revenue for the three months ended June 30, 2022 and 2021, respectively.

We had three ( 3 ) and two

( 2 ) customers that accounted for 54.3 % and 37.4 % of revenue for the six months ended June 30, 2022 and 2021, respectively.

We had two (2) and two (2)

customers that in the aggregate accounted for 27.5 % and 41.1 % of accounts receivable as of September 30, 2022 and December 31, 2021,

respectively.

We had two (2) and two (2) customer that accounted for 36.1 % and 45.9 %

of revenue for the three months ended September 30, 2022, and 2021, respectively.

We had three (3) and two (2) customer that accounted

for 49.2 % and 40.1 % of revenue for the nine months ended September 30, 2022 and 2021, respectively.

Significant Vendors

We had two (2) and three (3)

vendors that accounted for 48.3 % and 69.1 % of outstanding accounts payable at June 30, 2022 and December 31, 2021, respectively.

vendors that accounted for 46.2 % and 69.1 % of outstanding accounts payable at September 30, 2022 and December 31, 2021, respectively.

We have entered into various non-cancelable operating

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(in thousands)

Six Months Ended

September 30,

Finance lease cost

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The following is a schedule, by years, of maturities

of lease liabilities as of June 30, 2022:

of lease liabilities as of September 30, 2022:

(in thousands)

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(in thousands)

Six Months Ended

September 30,

Cash paid for amounts included in the measurement of lease liabilities:

Operating cash flows from operating leases

Operating cash flows from operating leases, net

Operating cash flows from finance leases

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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 1. Financial Statements