What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-11-14 compared with 2022-08-15 · 270 added, 277 removed, 220 unchanged (71% of the section changed)

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Condition and Results of Operations Forward-Looking Statements

The following discussion contains various forward-looking statements

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

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

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

different from those projected.

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

“intends,” “plans,” “estimates,” “projects,” should,” “may,” “propose,”

and similar expressions (or the negative versions of such words or expressions), as they relate to us or our management, are intended

to identify such forward-looking statements.

These forward-looking statements are subject to numerous risks and uncertainties that could

cause actual results to differ materially from those anticipated, and many of which are beyond our control.

Factors that could cause actual

results to differ materially from those anticipated are set forth under the caption “Risk Factors” in the Company’s

Form 10-K for the year ended December 31, 2021 as filed with the Securities and Exchange Commission on March 22, 2022.

The following discussion contains

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

Although we believe that, in making any

such statement, our expectations are based on reasonable assumptions, any such statement may be influenced by factors that could cause

actual outcomes and results to be materially different from those projected.

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

“believes,” “expects,” “intends,” “plans,” “estimates,” “projects,”

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

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

These forward-looking statements are

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

are beyond our control.

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

“Risk Factors” in the Company’s Form 10-K for the year ended December 31, 2021 as filed with the Securities

and Exchange Commission on March 22, 2022.

Our actual results, performance

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

Entertainment and Sports Venues

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

Convenience Stores

Financial Services

Medical and Healthcare Facilities

Mixed Use Developments

Corporate Communications, Employee Experience

Digital out of Home (DOOH) Advertising Networks

● Entertainment

and Sports Venues

● Restaurants,

including quick-serve restaurants (“QSR”)

● Convenience

and Healthcare Facilities

Use Developments

Communications, Employee Experience

out of Home (DOOH) Advertising Networks

We serve market-leading companies,

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brand awareness

Improved customer support

Enhanced employee productivity and satisfaction

Increased revenue and profitability

Improved guest experience

Increased customer/guest engagement

Improved patient outcomes

customer support

employee productivity and satisfaction

revenue and profitability

guest experience

customer/guest engagement

patient outcomes

Through a combination of organically

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

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

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

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

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

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

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

We have in-house

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

We believe this

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

sector expertise – Creative Realities has in-house experts in key market segments such as automotive, retail, quick-serve restaurants

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

Our expertise in these business segments enables our teams to

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

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

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The three primary sources of revenue for the Company

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

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

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

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

Hardware system design/engineering

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Media sales, as a result of our acquisition of Reflect

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

These include:

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

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

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

data services including dealer inventory at the VIN

data services including dealer inventory at the VIN level

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

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Recent Developments

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

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

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

Please see Note 5 Business

Combinations , Note 9 Loans Payable , Note 12 Warrants , and Note 13 Stock-based Compensation to the

Company’s Condensed Consolidated Financial Statements contained in this Report for a description of recent developments of the

Company that occurred during, and subsequent to, the three and nine months ended September 30, 2022.

Our Sources of Revenue

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Critical Accounting Policies and Estimates

The Company’s significant accounting policies are described in

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

in this Report.

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

generally accepted in the United States.

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

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

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

The Company’s significant

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

Financial Statements included elsewhere in this Report.

The Company’s Condensed Consolidated Financial Statements are prepared in

conformity with accounting principles generally accepted in the United States.

Certain accounting policies involve significant judgments,

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

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

of revenue and expenses during the reporting period.

Our actual results could differ from those estimates.

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

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

June 30, 2021

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

September 30, 2021

The tables presented below compare our results

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For the three months

ended June 30,

ended September 30,

Cost of sales

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Interest expense

Change in Fair Value of Warrant Liability

Change in Fair Value of Equity Guarantee

Loss on warrant amendment

Gain on settlement of debt

Change in fair value of equity guarantee

Other income/(expense)

Total other income/(expense)

Net income/(loss) before income taxes

Provision from income taxes

Net income/(loss)

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

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

sales activities as a combined company post-Merger.

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

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

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

Net (loss) before income taxes

Benefit/(provision) for income taxes

Sales were $11,180, representing

an increase of $6,427, or 135%, as compared to the same period in 2021, driven in part by the acquisition of Reflect via the Merger on

February 17, 2022, and the Company’s successful sales activities as a combined company post-Merger.

While the addition of Reflect

revenue is contributing to the growth in revenue, the combined company grew revenues approximately $3,463, or 45%, organically during

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

Hardware revenues were $5,015

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quarter by multiple customers.

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

Services and other revenues were $6,165 in the three months ended September 30, 2022, an increase of $3,627,

or 143%, with the inclusion of Reflect’s operations in the Company’s consolidated results for such period.

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revenue, which includes both software-as-a-service (“SaaS”) and help desk technical subscription services, were $3,900 in

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

subscription revenue in the current year.

the three months ended September 30, 2022 as compared to $1,444 in the same period in 2021, driven by the addition of Reflect’s

SaaS subscription revenue in the current year.

This represents a year-over-year growth rate of 170% in our higher margin, typically subscription-based,

managed services revenue.

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

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

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

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

We expect this contraction in

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

The gross profit margin increased in three months

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

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

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

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

Gross profit increased by

$2,167, or 92% during the three months ended September 30, 2022 as compared to the same period in 2021 driven by an increase in revenue

but offset by a reduction in gross profit margin.

Gross profit margin decreased to 40.4% from 49.4% driven by less favorable revenue mix

during the three months ended September 30, 2022 related to several material customer hardware rollouts during the year that had a lower

gross profit margin than our software services.

We expect this contraction in gross profit margin to be less severe as we move beyond

We believe the gross profit margin for the three months ended September 30, 2021 to be more representative of our normalized, long-term

gross profit margins.

Sales and Marketing Expenses

Sales and marketing expenses generally include the salaries, taxes,

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

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

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

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

enhanced investments into sales and marketing activities post-COVID.

Immediately following the Merger, the Company integrated the sales

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

Following the Merger and through integration

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

marketing – that were undercapitalized historically by the Company.

Additionally, the Company engaged an investor relations firm

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

As a result, we expect the sales and marketing

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

Sales and marketing expenses

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

other related sales and marketing costs.

Sales and marketing expenses increased by $388, or 118%, driven primarily by (i) the acquisition

of Reflect via the Merger on February 17, 2022, and (ii) the Company’s enhanced investments into sales and marketing activities

post-COVID-19 pandemic.

Immediately following the Merger, the Company integrated the sales and marketing functions and did not disaggregate

expenses between the two legacy companies.

Following the Merger and through integration activities, the Company adopted certain tools,

technology, and processes – particularly with respect to lead generation and brand marketing – that were undercapitalized

historically by the Company.

Additionally, the Company engaged an investor relations firm and has increased investor relations activities,

including conferences and presentations.

As a result, we expect the sales and marketing expenses of the Company for the three months ended

September 30, 2022 to adequately reflect the pace for spend in these areas in future reporting periods.

Research and Development Expenses

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

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

Merger on February 17, 2022.

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

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

We have integrated the

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

development activities from increasing this resource pool.

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

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

Research and development expenses

generally include personnel and development tools costs associated with the continued development of the Company’s content management

systems and other related application development.

Research and development increased by $12, or 5%, in the three months ended September

30, 2022 as compared to the same period in 2021.

The prior year included a benefit of $49 related ERC, resulting in a net reduction in

research and development expenses year over year for the three months ended September 30, 2022.

Through the Merger, we acquired a fully

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

with respect to talented software engineers.

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

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

The Company’s

gross spending on research and development activities has increased in the current year as a result, however, the capitalized portion

of those activities has also increased specifically related to the increased investment into development and enhancement of specific products,

features, and functionality associated with our customer acquisition strategy in key vertical markets.

We expect an elevated level of

expense throughout the remainder of 2022 and 2023 as we develop our current and future product set.

General and Administrative Expenses

General and administrative expenses increased $999, or 54%, driven

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

of the acquisition of Reflect on February 17, 2022.

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

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

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

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

the prior year.

primarily by (i) the inclusion in the prior year of a benefit of $186 related to ERC, and (ii) increased headcount and operations as a

result of the acquisition of Reflect via the Merger on February 17, 2022.

While the Company anticipates carrying higher general and administrative

expenses moving forward as a result of the acquisition and subsequent expansion in organic revenues, the Company continues to execute

integration activities (including but not limited to consolidation of CMS tools, cloud hosting environments, IT tools, and rightsizing

leases for office space) that we expect will be realized by the end of 2022 and into 2023.

The Company also reinstituted its 401k matching

program for employees in the fourth quarter of 2021, which represents an increase of $52 versus the prior year, and launched several investor

relations initiatives, increasing spend $81 in the three months ended September 30, 2022 versus the prior year.

Depreciation and Amortization Expenses

Depreciation and amortization

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

This was driven by the

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

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

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

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

expenses increased $538, or 155%, in the three months ended September 30, 2022 compared to the same period in 2021.

This was driven by

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

Interest Expense

See Note 9 Loans Payable to the Condensed

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

Changes in Fair Value of Warrant Liability;

Loss on Warrant Amendment

During the three months ended

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

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

completed in February 2022 to finance the Merger.

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

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

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

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

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

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

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

an additional one year.

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

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

The foregoing amendments to

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

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

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

Gain on Settlement of Debt

On May 13, 2021, the Company and Seller entered

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

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

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

related agreements.

As a result of this settlement, the full principal

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

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

during the three months ended June 30, 2021.

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

See Note 9 Loans Payable

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

Changes in Fair Value of Equity Guarantee

The Company has contingent

consideration arrangements related to certain acquisitions to potentially pay additional cash amounts in future periods based on the lack

of achievement of certain share price performance goals of our common stock.

Such contingent consideration arrangements are recorded at

fair value and are classified as liabilities on the acquisition date and are remeasured at each reporting period in accordance with ASC

805-30-35-1 using a Monte Carlo simulation model.

The change in the period represents the mark-to-market adjustment as of the balance

Nine Months Ended September 30, 2022 Compared to Nine Months Ended

September 30, 2021

The tables presented below compare our results

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

For the six months

ended June 30,

For the Nine Months

Ended September 30,

Cost of sales

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General and administrative expenses

Bad debt expense/(recovery)

Bad debt (recovery)/expense

Depreciation and amortization expense

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Change in fair value of equity guarantee

Change in fair value of Convertible Loan

Loss on debt waiver consent

Loss on warrant amendment

Change in fair value of Convertible Loan

Gain/(loss) on restructuring/settlement of debt

Gain/(loss) on settlement of debt

Other income/(expense)

Total other income/(expense)

Net income/(loss) before income taxes

Total other income

Net income before income taxes

Provision from income taxes

Net income/(loss)

Sales were $32,860, representing

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

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

While the addition of Reflect revenue is

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

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

Hardware revenues were $12,126

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

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

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

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

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

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

This represents a

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

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

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

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

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

We expect this contraction in gross

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

The gross profit margin increased in three months

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

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

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

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

an increase of $19,826, or 152%, as compared to the same period in 2021 driven in part by the acquisition of Reflect via the Merger on

February 17, 2022, and the Company’s successful sales activities as a combined company post-Merger.

While the addition of Reflect

revenue is contributing to the growth in revenue, the combined company has grown revenues approximately $11,435, or 53%, organically during

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

Hardware revenues were $17,141 in 2022, an increase of $10,814, or

171%, as compared to the prior year, driven by large scale LED deployments by multiple customers.

Services and other revenues were $15,719

in the nine months ended September 30, 2022, an increase of $9,012, or 134%, with the inclusion of Reflect’s operations in the Company’s

consolidated results for such period.

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

desk technical subscription services, were $10,435 in the nine months ended September 30, 2022 as compared to $4,174 in the same period

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

This represents a year-over-year growth

rate of 150% in our higher margin, typically subscription-based, managed services revenue.

Gross profit increased by $6,612, or 102% during the nine months ended

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

Gross profit margin decreased to 39.8% from 49.5% driven by revenue mix during the three months ended September 30, 2022 related to several

material customer hardware rollouts active during the first half of the year that had a lower gross profit margin than our software services.

We expect this contraction in gross profit margin to be less severe as we move beyond 2022.

Sales and Marketing Expenses

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in the prior year of a benefit of $232 related Employee Retention Credits (“ERC”) related to the retention and payment of

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

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

Immediately following the acquisition

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

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

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

Additionally, the

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

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

for spend in these areas in future periods.

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

February 17, 2022, and (iii) the Company’s enhanced investments into sales and marketing activities post-COVID-19 pandemic.

following the Merger, the Company integrated the sales and marketing functions and did not disaggregate expenses between the two legacy

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

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

Additionally,

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

As a result, we expect the sales and marketing expenses of the Company for the nine months ended September 30, 2022 to adequately reflect

the pace for spend in these areas in future reporting periods.

Research and Development Expenses

Research and development expenses

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

acquisition of Reflect on February 17, 2022.

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

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

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

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

We expect this elevated level of expense during

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

generally include personnel and development tools costs associated with the continued development of the Company’s content management

systems and other related application development.

Research and development increased by $442, or 97%, in the nine months ended September

30, 2022 as compared to the same period in 2021, driven primarily by (i) the inclusion in the prior year of a benefit of $196 related

ERC, and (ii) the acquisition of Reflect via the Merger on February 17, 2022.

Through the Merger, we acquired a fully staffed, experienced

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

software engineers.

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

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

We expect this elevated level of

expense during the nine months ended September 30, 2022 to continue into the future as we develop our current and future product set.

General and Administrative Expenses

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While the Company anticipates carrying higher

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

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

be realized by the end of 2022.

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

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

in 2022 versus the prior year.

Expenses related to the Company’s allowance

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

This increase was primarily driven

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

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

accounts receivable.

G&A expenses moving forward as a result of the acquisition and subsequent expansion in organic revenues, the Company continues to

execute integration activities (including but not limited to consolidation of CMS tools, cloud hosting environments, IT tools, and rightsizing

leases for office space) that we expect will be realized by the end of 2022 and into 2023.

The Company also reinstituted its 401k matching

program for employees in the fourth quarter of 2021, which represents an increase of $120 versus the prior year, and launched several

investor relations initiatives, increasing spend $300 for the nine months ended September 30, 2022 versus the prior year.

Expenses related to the Company’s

allowance for bad debts increased by $627, or (135%) for the nine months ended September 30, 2022 compared to 2021.

This increase was

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

The bad debt expense recorded for the nine months ended September 30, 2022 is representative of the Company’s actual history

with uncollectable accounts receivable.

Depreciation and Amortization Expenses

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Change in fair value of Convertible Loan

See Note 9 Loans Payable to the Condensed

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

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

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

See Note 9 Loans Payable

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

As of September 30, 2021,

we updated our fair value analysis of the Convertible Loan, resulting in recognition of a $166 during the nine months ended September

Changes in Fair Value of Warrant Liability

Loss on Warrant Amendment

During the six months ended

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

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

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

June 30, 2022, resulting in the gain.

During the nine months ended

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

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

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

2022 and June 30, 2022, resulting in the gain.

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

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as of June 30, 2022.

Loss on Debt Waiver

February 17, 2022, in connection with obtaining a waiver of certain restrictions in investment documents between an investor and

the Company in order to consummate the financing contemplated by the Credit Agreement, the Company paid consideration to such investor

in the form of a warrant (the “Purchaser Warrant”) to purchase 1,400,000 shares of Company common stock in an at-the-market

offering under Nasdaq rules.

The number of shares of Company common stock subject to the Purchaser Warrant is equal to the waiver fee

($175) divided by $0.125 per share.

The exercise price of the Purchaser Warrant is $1.41 per share, and the Purchaser Warrant is not exercisable

until August 17, 2022.

The Purchaser Warrant expires five years from the date of issuance.

At the date of issuance, the Company performed

a Black-Scholes valuation of the Purchaser Warrant, resulting in a fair value of $0.8656 per warrant.

In recording the warrant liability,

the Company recorded an expense in the Condensed Consolidated Statement of Operations associated with the issuance of the Purchaser Warrant

Loss on Warrant Amendment

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

Purchaser Warrant (1,400,000 warrants).

The amendments to such warrants removed the holder’s option to determine the value of such

warrants utilizing the volume weighted average price (“VWAP”) of the Company’s common stock on the trading day immediately

preceding the date of a notice in a cashless exercise, and removed the condition to exercising such warrants that the Company’s

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

The amendments to the warrants also extended the term of

such warrants for an additional one year, such that the Common Stock Warrant will expire on February 3, 2028, and the Lender Warrant and

Purchaser Warrant will expire on February 17, 2028.

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

reassessed the fair value of each of the Common Stock, Lender and Purchaser Warrants, resulting in the Company recording a loss on the

fair value of these warrants of $345.

Gain on Settlement of Debt

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

On January 11, 2021, the

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

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

Security Act of 2020.

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

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

On May 13, 2021, the Company and Seller entered

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

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

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

related agreements.

As a result of this settlement, the full principal

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

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

during the six months ended June 30, 2021.

Supplemental Operating Results on a Non-GAAP Basis

The following non-GAAP data,

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

Our management believes that this non-GAAP

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

on an ongoing basis.

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

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

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

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

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

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

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

We do not intend the presentation of these non-GAAP

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

These non-GAAP measures should

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

January 11, 2021, the Company received a notice from Old National Bank regarding forgiveness of the loan in the principal amount of $1,552

(the “PPP Loan”) that was made pursuant to the Small Business Administration Paycheck Protection Program under the Coronavirus

Aid, Relief and Economic Security Act of 2020.

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

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

On May 13, 2021, the Company

and seller of Allure (“Seller”) entered into a settlement agreement wherein neither party admitted liability, and the Company

agreed to pay, and Seller agreed to accept, $100 as settlement in full for the outstanding balance of principal and accrued interest under

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

and all related agreements.

As a result of this settlement,

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

Financial statements of $1,624, representing $1,538 related to the Seller Note and $86 of related interest thereon, during the nine months

ended September 30, 2021.

Summary Unaudited Quarterly Financial Information

The following represents unaudited financial information

derived from the Company’s quarterly financial statements:

Quarters Ended

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The cash used in operating

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

We produced net income of $3,764.

activities were $1,050 for the nine months ended September 30, 2022 compared to $367 for the same period in 2021.

We produced net income

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

Other than net income,

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

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

than net income, cash provided by operating activities was driven by growth of $1,019 of deferred revenue and $533 of accrued expenses,

combined with a reduction in prepaid assets of $682, partially offset by an expansion of accounts receivable and inventory of $2,835 and

$1,032, respectively.

Investing Activities

Net cash used in investing

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

The use of cash in the

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

We currently do not have

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

however, we anticipate continued elevated capital expenditures

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

new content management and advertising technology platforms.

activities during the nine months ended September 30, 2022 was $20,268 compared to $432 during the same period in 2021.

The use of cash

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

We currently do

not have any material commitments for capital expenditures as of September 30, 2022;

however, we anticipate continued elevated capital

expenditures in excess of historical trends through second quarter of 2023 as we complete the modernization and internationalization of

our automotive platform in an effort to capture incremental SaaS-based revenue contracts.

Financing Activities

Net cash provided by financing

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

The increase is the result

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

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

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

Contractual Obligations

We have no material commitments

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

activities during the nine months ended September 30, 2022 was $19,254 compared to $1,745 for the same period in 2021.

The increase is

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

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

which provided net cash of $10,109 and $9,868, respectively, reduced by $723 as a result of repayments of principal on the Seller Note.

Off-Balance Sheet Arrangements

During the three months ended

March 31, 2022, we did not engage in any off-balance sheet arrangements set forth in Item 303(a) (4) of Regulation S-K.

During the three and nine months ended September

30, 2022, we did not engage in any off-balance sheet arrangements set forth in Item 303(a)(4) of Regulation S-K.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis