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Item 9A. Controls and Procedures

2023-03-30 compared with 2022-03-22 · 1092 added, 1757 removed, 268 unchanged (91% of the section changed)

ITEM 9A CONTROLS AND PROCEDURES

of Disclosure Controls and Procedures

evaluation was performed under the supervision and with the participation of our management, including our Chief Executive Officer (principal

executive officer) and Chief Financial Officer (principal financial officer), of the effectiveness of our disclosure controls and procedures,

as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act (“Exchange Act”), as of the end of the period

covered by this Annual Report.

Based on that evaluation, our management, including our Chief Executive Officer and Chief Financial Officer,

concluded that our disclosure controls and procedures were effective as of December 31, 2021, and designed to ensure that information

required to be disclosed by us in reports that we file or submit under the Exchange Act, is recorded, processed, summarized and reported

within the time periods specified in the rules and forms of the Securities and Exchange Commission and that such information is accumulated

and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely

decisions regarding required disclosure.

Annual Report on Internal Control Over Financial Reporting

management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f)

and 15d-15(f) under the Exchange Act.

Our internal control over financial reporting is designed to provide reasonable assurance regarding

the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP.

of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Therefore, even those

systems determined to be effective can provide only reasonable assurance of achieving their control objectives.

the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated

the effectiveness of our internal control over financial reporting as of December 31, 2021 based on the framework in Internal

Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).

Based on our assessment and those criteria, management believes that we maintained effective internal control over financial reporting

as of December 31, 2021.

in Internal Control over Financial Reporting

were no changes in our internal control over financial reporting that occurred during the quarter ended December 31, 2021, that have

materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Evaluation of Disclosure Controls and Procedures

An evaluation was performed under the supervision and with the participation of our management, including our Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial officer), of the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act (“Exchange Act”), as of the end of the period covered by this Annual Report.

Based on that evaluation, our management, including our Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures were effective as of December 31, 2022, and designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Management ’

s Annual Report on Internal Control Over Financial Reporting  

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act.

Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Therefore, even those systems determined to be effective can provide only reasonable assurance of achieving their control objectives.

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of our internal control over financial reporting as of December 31, 2022 based on the framework in 

Internal Control - Integrated Framework (2013)  issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).

Based on our assessment and those criteria, management believes that we maintained effective internal control over financial reporting as of December 31, 2022.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the quarter ended December 31, 2022, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B OTHER INFORMATION

March 22, 2022, the Company issued a press release announcing its financial condition and results of operations for the three months

and year ended December 31, 2021.

A copy of the press release is furnished as Exhibit 99.1 and is incorporated by reference

into this Item 9B in lieu of separately furnishing such press release under Item 2.02 of Form 8-K.

This disclosure, including Exhibit

99.1 hereto, shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the

“Exchange Act”), or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference

into any of the Company’s filings under the Securities Act of 1933, as amended, or the Exchange Act, except as expressly set forth

by specific reference in such filing.

DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS.

Not applicable.

ITEM 10 DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Board of Directors consists of Dennis McGill (Chairman), Richard Mills (CEO), David Bell, Donald Harris, and Stephen Nesbit.

following table sets forth the name and position of each of our current directors and executive officers.

Executive Officer and Director

Financial Officer

biographies of the above-identified individuals are set forth below:

McGill joined our Board of Directors in November 2019.

Over the course of a 45-year career, Mr.

McGill has served as a director,

Chief Executive Officer or Chief Financial Officer of various public and private companies.

From June 2015 to October 2017, Mr.

served as the President and CEO of ReCommunity Holdings II, Inc., the largest independent recycling processing company in the US, processing

over 1.8 million tons of material annually and employing a team of 1,600 members.

McGill served on the Board of Directors for Lighting

Science Group Corp.

(“LSGC”) from March 2015 to July 2017 while the company was publicly traded.

McGill also served as

the LSGC’s Interim Chief Operating Officer from June 2014 to September 2014 and as LSGC’s Interim Chief Financial Officer

from July 2014 to December 2014.

McGill joined Pegasus Capital as an operating advisor in December 2014 and remains in that capacity

Since June 2014, Mr.

McGill has also served on the board of directors of DGSE Companies, Inc., a company listed on the NYSE MKT

that buys and sells jewelry, diamonds, fine watches, rare coins and currency (“DGSE”).

McGill previously served on the

board of directors of DGSE, ReCommunity Holdings, LP and Fiber Composites, LLC and served as the chairman of DGSE’s audit committee.

From February 2013 to October 2013, Mr.

McGill served as executive vice president and Chief Financial Officer of Heartland Automotive

Services, Inc., where he actively participated with the senior management team to develop and roll-out a new business model.

From September

2010 to February 2013, Mr.

McGill served as executive vice president and Chief Financial Officer of Blockbuster LLC and was responsible

for directing and managing various aspects of the Chapter 11 process.

From March 2005 to July 2010, Mr.

McGill served as executive vice

president and Chief Financial Officer of Safety-Kleen Systems, Inc., during which time he led the company’s merger and acquisition

efforts and grew the company from $0 to $160 million in EBITDA during his tenure.

McGill holds a Bachelor of Science degree in Finance

and Accounting and Master of Business Administration degree from the University of California, Berkeley and is a Certified Public Accountant

in the state of California.

Bell joined our Board of Directors in August 2014 in connection with our acquisition of Creative Realities, LLC.

over 40 years of advertising and marketing industry experience to the board, including serving as CEO of three of the largest companies

in the industry–Bozell Worldwide, True North Communications and The Interpublic Group of Companies, Inc.

Since 2007, Mr.

led Slipstream Communications, LLC which is an international company providing strategic branding, digital marketing, and public relations

services and served as a Senior Advisor to Google Inc.

from 2006 to 2009.

Bell previously served as an Operating Advisor at Pegasus

Capital Advisors.

He is currently a Senior Advisor to AOL and has also served on the boards of multiple publicly traded companies, including

Lighting Science Group Corporation and Point Blank Solutions, Inc., and Primedia, Inc., and served as President and CEO of The Interpublic

Group of Companies Inc.

from 2003 to 2005.

Bell served as an independent director on the Board of Directors of Time, Inc.

2014 to January 2018.

Harris was appointed to our Board of Directors in August 2014 in connection with our acquisition of Broadcast International,

He has been President of 1162 Management, and the General Partner of 5 Star Partnership, a private equity firm, since June 2006.

Harris has been President and Chief Executive Officer of UbiquiTel Inc., a telecommunications company organized by Mr.

other investors, since its inception in September 1999 and also its Chairman since May 2000.

Harris served as the President of Comcast

Cellular Communications Inc.

from March 1992 to March 1997.

Harris received a Bachelor of Science degree from the United States Military

Academy and an MBA from Columbia University.

Harris’s experience in the telecommunications industry and his association with

private equity funding is valuable to the Company.

Mills is currently our Chief Executive Officer and a member of our Board of Directors.

Mills possesses over 32 years of industry

He was previously Chief Executive Officer of ConeXus World Global, a leading digital media services company, which he founded

in 2010, and which was acquired by the Company.

Prior to founding ConeXus, Mr.

Mills was President and Director at Beacon Enterprise

Solutions Group, Inc., a public telecom and technology infrastructure services provider.

Previous to that, he joined publicly traded

Pomeroy Computer Resources, Inc.

in 1993 and served as Chief Operating Officer and a member of the Board of Directors from 1995 until

Mills helped grow sales at Pomeroy during his time there from $100 million to $700 million.

Mills was also a founder of

Strategic Communications LLC.

Nesbit has been in the digital signage and digital advertising industry for over 20 years.

He is currently the Managing Director

of Prestonwood Trail Holdings LLC and has provided advisory services for companies in the Digital Signage and Digital Media Industry

for the past 10 years.

He has directed and advised projects in North America, Europe, Asia proper, Southeast Asia, the Middle East,

Australia and Africa.

Prior to founding Prestonwood Trail, Mr.

Nesbit was the President/COO at Reflect Systems, a prominent software

and services company in the Digital Signage business.

He joined Reflect after serving as President/COO of MarketForward, the Global Digital

Media Division owned by the Publicis Groupe S.A.

in Paris France.

Nesbit began his career in Digital Signage as the EVP Global Operations

& GM International Business for Next Generation Network.

NGN was one of the first Digital Place Based Advertising companies in the

industry before its sale to Anschutz Investments where the company changed its name to National Cinemedia (NASDAQ:

career at IBM in the Data Processing Division holding various field and HQ management positions.

Nesbit also held management and

executive positions at Wang Labs and BBN Communications Inc., the communications company that was the original architect of the Internet.

Nesbit holds an undergraduate degree from the University of Notre Dame and earned an MBA from the Indiana University Kelly Graduate School

Logan joined the Company as VP of Finance in November 2017 and was promoted to the position of Chief Financial Officer effective

May 16, 2018.

From January 2007 until November 2017, Mr.

Logan was employed by Ernst & Young in the assurance services

group where he primarily served large public companies, including a two-year international rotation in London, UK in the asset management

He brings over ten years of experience in SEC reporting, technical accounting matters and Sarbanes-Oxley compliance expertise

as well as expertise in initial public offerings, acquisitions and integration.

degrees in Accounting and Economics from

Bellarmine University and is a Certified Public Accountant.

our corporate bylaws, all of our directors serve for indefinite terms expiring upon the next annual meeting of our shareholders.

considering whether directors and nominees have the experience, qualifications, attributes and skills to enable the Board of Directors

to satisfy its oversight responsibilities effectively in light of our business and structure, the Board of Directors focuses primarily

on the industry and transactional experience, in addition to any unique skills or attributes associated with a director.

McGill, the Board of Directors considered his background and experience with running and accelerating growth at public companies.

With regard to Mr.

Bell, the Board considered his deep experience within the advertising and marketing industries and his prior management

of large enterprises.

With regard to Mr.

Mills, the Board of Directors considered his extensive background and experience in the industry.

With regard to Mr.

Harris, the Board of Directors considered his extensive experience in the telecommunications industry and association

with private equity investors.

Finally, with regard to Mr.

Nesbit, the Board of Directors considered his extensive experience in the

digital signage industry, having run several companies in the industry and acted as a consultant broadly for digital signage companies

over the past twenty years.

Board of Directors has determined that there are presently three “independent” directors as such term is defined in Section

5605(a)(2) of the Nasdaq listing rules, each of whom also meets the criteria for independence set forth in Rule 10A-3(b)(1) under the

Securities Exchange Act of 1934.

The directors whom the board has determined to be independent are Messrs.

Bell, Harris, and Nesbit.

Board of Directors has determined that at least two members of the Board, Mr.

McGill and Mr.

Bell, qualify as an “audit committee

financial expert” as that term is defined in Regulation S-K promulgated under the Securities Exchange Act of 1934.

McGill and Mr.

Bell’s relevant experience in this regard is detailed above, which includes past employment experience in finance

and through various Director roles at public companies, including experience on the Audit Committee for other publicly traded companies.

Bell is deemed to be independent of the Company.

The Board of Directors has determined that each director is able to read and understand

fundamental financial statements.

Board of Directors has created a standing Compensation Committee and Audit Committee.

Nesbit, Harris, and Bell serve on the Compensation

Bell, Harris and Nesbit serve on the Audit Committee.

In the case of the Compensation Committee, Mr.

Nesbit serves

as chair, and in the case of the Audit Committee, Mr.

Bell serves as chair.

The Board of Directors has determined that at least one member

of the Audit Committee, Mr.

Bell, is an “audit committee financial expert” as that term is defined in Regulation S-K promulgated

under the Securities Exchange Act of 1934.

Bell’s relevant experience in this regard is detailed above.

Nesbit qualify as “independent” member of the board as described above.

The Board of Directors has determined that

each director serving on the Audit Committee is able to read and understand fundamental financial statements.

Board of Directors has not created a separate committee for nomination or corporate governance.

Instead, the entire Board of Directors

shares the responsibility of identifying potential director-nominees to serve on the Board of Directors.

Nevertheless, nominees to serve

as directors on our Board of Directors are selected by those directors on our board who are independent.

Communications

with Board Members

Board of Directors has provided the following process for shareholders and interested parties to send communications to our board and/or

individual directors.

All communications should be addressed to Creative Realities, Inc., 13100 Magisterial Drive, Ste.

100, Louisville,

KY 40223, Attention:

Corporate Secretary.

Communications to individual directors may also be made to such director at our company’s

All communications sent to any individual director will be received directly by such individuals and will not be screened or

reviewed by any company personnel.

Any communications sent to the board in the care of the Corporate Secretary will be reviewed by the

Corporate Secretary to ensure that such communications relate to the business of the company before being reviewed by the board.

have adopted a Code of Business Conduct and Ethics that applies to all of our employees, officers (including our principal executive

officer, principal financial officer, principal accounting officer or controller, and persons performing similar functions) and directors.

Our Code of Business Conduct and Ethics satisfies the requirements of Item 406(b) of Regulation S-K.

Our Code of Business Conduct and

Ethics is available, free of charge, upon written request to our Corporate Secretary at 13100 Magisterial Drive, Ste.

100, Louisville,

The information required by this Item is incorporated herein by reference to our definitive proxy statement for the 2023 Annual Meeting of Stockholders (the "Proxy Statement"), which will be filed with the SEC pursuant to Regulation 14A under the Exchange Act.

ITEM 11 EXECUTIVE COMPENSATION

Compensation Table

following table sets forth information concerning the compensation of our named executive officers for 2021 and 2020 ( table and

footnotes in whole dollars ) :

Name and Principal Position (a)

Incentive Plan

Richard Mills

Chief Executive Officer and Director

Chief Financial Officer

Mills joined the Company effective October 15, 2015.

Logan joined the Company effective November 2017.

March 19, 2020 and in response to state and local authorities forcing many businesses to temporarily reduce or cease operations to

slow the spread of the COVID-19 pandemic, the Company’s Board of Directors approved a six-month reduction of the salaries of

the Chief Executive Officer and Chief Financial Officer by twenty percent (20%), thereby reducing the salaries payable to such officers

in 2020 to $297,000 and $224,100, respectively.

The salary reductions resulted in actual salaries to $277,962 and $209,735, respectively,

During 2021, the Company reinstated lost salaries one-third on each of April 1, July 1, and October 1, the final reinstate

thereby increasing the compensation to its pre-pandemic levels of $330,000 and $249,000, respectively.

The graded reinstatement resulted

in actual salaries for Mr.

Mills and Mr.

Logan during 2021 of $296,152, and $223,460, respectively.

were two tranches of stock options issued to Mr.

Mills and Mr.

Logan during the year.

50% of the stock options awarded become exercisable

in increments of 33 percent of the total shares purchasable under this issuance on June 1 annually, beginning in 2021 and ending

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

The values included

in the table above represent the number of shares awarded to Mr.

Mills (480,000) and Mr.

Logan (240,000) multiplied by the grant

date fair value of the awards as of the grant date.

These calculations exclude any value associated with an equal number of performance

restricted stock options issued to both Mr.

Mills and Mr.

Logan which become exercisable in increments of 33 percent of the total

shares purchasable under this issuance on June 1 annually, beginning in 2021 and ending in 2023, subject to satisfying the Company

revenue target and earnings before interest, taxes, depreciation and amortization (“EBITDA”) target for the applicable

In each of calendar years 2020, 2021 and 2022, one-third of the total shares may vest (if the revenue and EBITDA targets are

met), and the shares that are subject to vesting each year are allocated equally to each of the revenue and EBITDA targets for such

These performance options include a catch-up provision, where any options that did not vest during a prior year due to the

Company’s failure to meet a prior revenue or EBITDA target may vest in a subsequent vesting year if the revenue or EBITDA target,

as applicable, is met in the future year.

No expense was recorded in 2020 as neither the revenue nor EBITDA target were achieved.

The Company recorded stock compensation expense of $449,623 related to Mr.

Mills and Mr.

Logan for current year and catch-up expense

related to the achievement of the EBITDA target in 2021.

The revenue and EBITDA targets for the following years are as follows:

addition to the employee stock option plan approved by the Board of Directors in May 2020, the Board of Directors also approved an

employee bonus plan pursuant to which certain officers and other employees of the Company would be granted incentive compensation

in the form of cash bonuses.

In each of the calendar years 2020, 2021 and 2022, Mr.

Mills was provided a target bonus of $165, or

50% of his base salary, and Mr.

Logan was provided a target bonus of $62, or 25% of his base salary, subject to satisfying the same

Company revenue and EBITDA targets for the applicable year on which vesting of performance-based share compensation were set.

Company targets for calendar year 2020 were not met and there was no impact on the Company’s financial statements of those

awards during 2020.

While the Company targets for revenue were not achieved in 2021, the EBTIDA target was achieved and the Company

has accrued $114 in the Consolidated Balance Sheet as of December 31, 2021 related to this bonus plan.

material terms of employment agreements of Richard Mills, Chief Executive Officer of Creative Realities, and Will Logan, Chief Financial

Officer of the Company, including those adopted on November 12, 2021, and payments to be made upon a change in control are discussed

below, in the narrative following “Employment Agreements.”

named executive officers are eligible for retirement benefits on the same terms as non-executives under the Company’s defined contribution

401(k) retirement plan.

Employees may contribute pretax compensation to the plan in accordance with current maximum contribution levels

proscribed by the Internal Revenue Service.

Beginning on April 1, 2018 but suspended indefinitely as of March 19, 2020, the Company began

contributing an employer contribution match of 50% of employee wages up to 6%, for an effective match of 3%.

Creative Realities re-implemented

the employer contribution match at the previous rate effective October 1, 2021.

Mills Employment Agreement

Realities employed Richard Mills as Creative Realities Chief Executive Officer.

Mills’ employment agreement was initially effective

for a two-year term, which automatically renewed for additional one-year periods unless either Creative Realities or Mr.

Mills elected

not to extend the term.

The agreement provided for an initial annual base salary of $270 subject to annual increases but generally not

subject to decreases.

Mills’ current annual base salary is $330.

Under the agreement, Mr.

Mills was eligible to participate

in performance-based cash bonus or equity award plans for Creative Realities senior executives.

Mills participated in Creative Realities

employee benefit plans, policies, programs, prerequisites and arrangements to the extent he meets applicable eligibility requirements.

In the event of a termination of employment for good reason, as defined, without cause, as defined, or within 12 months following a change

in control, as defined, other than for reason of death, disability or for cause, any of which occur during the first year of Mr.

employment, Mr.

Mills would have been entitled to receive a severance payment equal to six months of his base salary.

After the one-year

anniversary of his employment (the current term of Mr.

Mills’ employment is beyond the one-year anniversary), the severance amount

increased to 12 months of then-current base salary.

The agreement provided that any severance payments would be paid in installments

over the course of the severance.

The agreement contained certain non-solicitation and non-competition provisions that continue after

employment for a period of one year.

The agreement also contained other customary restrictive and other covenants relating to the confidentiality

of information, the ownership of inventions and other matters.

Mills and Creative Realities entered into a new employment agreement on November 12, 2021.

The employment agreement is effective for

a one-year term, which automatically renews for additional one-year periods unless either Creative Realities or Mr.

Mills elects not

to extend the term.

The agreement provides for an initial annual base salary of $330 subject to annual increases but generally not subject

to decreases.

The employment agreement provides that Mr.

Mills’ annual base salary adjusts automatically upon the closing of the

Merger to $450 subject to annual increases but not generally subject to decreases.

Under the agreement, Mr.

Mills is eligible to participate

in performance-based cash bonus or equity award plans for Creative Realities senior executives.

Mills will participate in Creative

Realities employee benefit plans, policies, programs, perquisites and arrangements to the extent he meets applicable eligibility requirements.

In the event of a termination of employment for good reason, as defined, without cause, as de-fined, or within 12 months following a

change in control, as defined, other than for reason of death, disability or for cause, Mr.

Mills will be entitled to receive aggregate

severance payments equal to twelve months of his base salary.

The agreement provides that any severance payments would be paid in installments

over the course of the severance.

The agreement contains certain non-solicitation and non-competition provisions that continue after

employment for a period of one year.

The agreement also contains other customary restrictive and other covenants relating to the confidentiality

of information, the ownership of inventions and other matters.

Logan Employment Agreement

Logan, Creative Realities’ Chief Financial Officer, had an at-will employment arrangement with Creative Realities.

current annual base salary is $249.

Logan participated in Creative Realities employee benefit plans, policies, programs, perquisites

and arrangements to the extent he meets applicable eligibility requirements, and also received the stock options discussed under “Outstanding

Equity Awards at Fiscal Year-End” below.

Logan and Creative Realities entered into an employment agreement on November 12, 2021.

The employment agreement is effective for a one-year

term, which automatically renews for additional one-year periods unless either Creative Realities or Mr.

Logan elects not to extend the

The agreement provides for an initial annual base salary of $249 subject to annual increases but generally not subject to decreases.

The employment agreement provides that Mr.

Logan’s annual base salary adjusts automatically upon the closing of the Merger to $350,

subject to annual increases but not generally subject to decreases, and Mr.

Logan will receive a $75 cash bonus upon the closing of the

The Merger closed on February 17, 2022.

Under the agreement, Mr.

Logan is eligible to participate in performance-based cash bonus

or equity award plans for Creative Realities senior executives.

Logan participates in Creative Realities employee benefit plans,

policies, programs, prerequisites and arrangements to the extent he meets applicable eligibility requirements.

In the event of a termination

of employment for good reason, as defined, without cause, as defined, or within 12 months following a change in control, as defined,

other than for reason of death, disability or for cause, Mr.

Logan will be entitled to receive aggregate severance payments equal to

six months of his base salary.

The agreement provides that any severance payments would be paid in installments over the course of the

The agreement contains certain non-solicitation and non-competition provisions that continue after employment for a period

The agreement also contains other customary restrictive and other covenants relating to the confidentiality of information,

the ownership of inventions and other matters.

Equity Awards at Fiscal Year-End

following table sets forth certain information concerning outstanding stock options and restricted stock awards held by Creative Realities

named executive officers as of December 31, 2021:

Option Awards (a)

Number of Securities

Richard Mills

stock options become exercisable in increments of 33 percent of the total shares purchasable under this issuance on June 1 annually,

beginning in 2021 and ending in 2023.

These stock options become exercisable in increments of 16.67 percent of the total shares purchasable under this issuance subject to satisfying Creative Realities revenue target and earnings before interest, taxes, depreciation and amortization (“EBITDA”) target for the applicable year.

In each of calendar years 2020, 2021 and 2022, one-third of the total shares may vest (if the revenue and EBITDA targets are met), and the shares that are subject to vesting each year are allocated equally to each of the revenue and EBITDA targets for such year, with each target and vesting being independently achieved without regard for the other.

These performance options include a catch-up provision, where any options that did not vest during a prior year due to Creative Realities’ failure to meet a prior revenue or EBITDA target may vest in a subsequent vesting year if the revenue or EBITDA target, as applicable, is met in the future year.

The revenue and EBITDA targets for the following years are as follows:

Calendar Year

Revenue Target

EBITDA Target

executives met the foregoing EBTIDA target for calendar year 2021.

stock options become exercisable in increments of 25 percent of the total shares purchasable under this issuance on November 6 annually,

beginning in 2018 and ending in 2021.

stock options become exercisable in increments of 25 percent of the total shares purchasable under this issuance on September 20

annually, beginning in 2019 and ending in 2022.

March 13, 2019, Creative Realities’ Board of Directors approved a plan to compensate non-officer directors for their service to

Creative Realities in the amount of $25 per year, beginning April 1, 2019, to be issued in either cash or restricted stock vesting immediately

upon issuance.

Shares of restricted stock were issued quarterly in arrears for service the preceding quarter for a value of $6 per director,

with the number of shares issued based on the most recent close price of Creative Realities’ common stock at the end of the previous

calendar quarter.

November 17, 2021, Creative Realities’ Board of Directors updated its director compensation plan to compensate non-officer directors

grant of shares of unrestricted common stock of Creative Realities, issuable on November 17, 2021, 2022 and 2023, having an annual value

of $24, with the per-share price to be determined based upon the closing price of the Company’s common stock as reported on Nasdaq

on such issuance date;

option issuable to each non-executive director to purchase 60,000 shares of Creative Realities common stock (or in the case of Dennis

McGill, Chairman of the Creative Realities Board, 75,000 shares), which vest in three equal installments on November 17, 2021, 2022 and

2023, subject to continuing service as a director as of such vesting date.

The exercise price of such options is $2.21, the closing price

of Creative Realities’ common stock as reported on Nasdaq on the date of adoption of such plan.

table below sets forth the compensation paid to Creative Realities non-employee directors during 2021:

Director Compensation ( table and footnotes in whole dollars )

Option awards

incentive plan

Dennis McGill

Stephen Nesbit

director was awarded shares of the Company’s common stock for service having an aggregate value of $6,250 on a quarterly basis

in arrears for services completed during the immediately preceding quarter.

This arrangement was in place for the first three quarters

of 2021, with $18,750 of the total above for each director representing the aggregate value of shares issued on the date of issuance.

the aggregate grant date fair value of three-year option awards vesting in 2021, 2022, and 2023 based on the Black-Scholes value

determined as of the November 17, 2021 grant date.

The information required by this Item is incorporated by reference from the Proxy Statement.

ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

following table sets forth the number of common shares, and percentage of outstanding common shares, beneficially owned as of March 22,

person known by us to be the beneficial owner of more than five percent of our outstanding common stock,

current director,

executive officer of the Company and other persons identified as a named executive in this Annual Report on Form 10-K, and

current executive officers and directors as a group.

otherwise indicated, the address of each of the following persons is 13100 Magisterial Drive, Suite 100, Louisville, KY 40223, and each

such person has sole voting and investment power with respect to the shares set forth opposite his, her or its name.

Name and Address

Slipstream Funding, LLC [2]

c/o Pegasus Capital Advisors, L.P.

750 E Main St., Suite 600

Stamford, CT 06902

Slipstream Communications, LLC [3]

c/o Pegasus Capital Advisors, L.P.

750 E Main St., Suite 600

Stamford, CT 06902

Stephen Nesbit [4]

Dennis McGill [6]

David Bell [7]

Richard Mills [8]

Will Logan [9]

All current executive officers and directors as a group [10]

ownership is determined in accordance with the rules of the SEC, and includes general voting power and/or investment power with

respect to securities.

Shares of common stock issuable upon exercise of options or warrants that are currently exercisable or exercisable

within 60 days of March 22, 2022, and shares of common stock issuable upon conversion of other securities currently convertible

or convertible within 60 days, are deemed outstanding for computing the beneficial ownership percentage of the person holding

such securities but are not deemed outstanding for computing the beneficial ownership percentage of any other person.

Under applicable

SEC rules, each person’s beneficial ownership is calculated by dividing the total number of shares with respect to which they

possess beneficial ownership by the total number of outstanding shares of Creative Realities.

In any case where an individual has

beneficial ownership over securities that are not outstanding, but are issuable upon the exercise of options or warrants or similar

rights within the next 60 days, that same number of shares is added to the denominator in the calculation described above.

the calculation of each person’s beneficial ownership set forth in the “Percentage of Common Shares” column of

the table may include shares that are not presently outstanding, the sum total of the percentages set forth in such column may exceed

Investment and voting power over shares held by Slipstream Funding, LLC is held by Slipstream Communications, LLC, its sole member, and may deemed to be directly or indirectly controlled by Craig Cogut, Chairman and Chief Executive Officer of Pegasus Capital Advisors, LLC.

See table footnote 3 for further information regarding Slipstream Communications, LLC.

Investment and voting power over shares held by Slipstream Communications, LLC may be deemed to be directly or indirectly controlled by Craig Cogut, Chairman and Chief Executive Officer of Pegasus Capital Advisors, LLC.

Slipstream Communications, LLC (“Slipstream Communications”) is the sole member of Slipstream Funding, LLC (“Slipstream Funding”).

BCOM Holdings, LP (“BCOM Holdings”) is the managing member of Slipstream Communications.

BCOM GP LLC (“BCOM GP”) is the general partner of BCOM Holdings.

Business Services Holdings, LLC (“Business Services Holdings”) is the sole member of BCOM GP.

PP IV BSH, LLC (“PP IV BSH”), Pegasus Investors IV, L.P.

(“Pegasus Investors”) and Pegasus Partners IV (AIV), L.P.

(“Pegasus Partners (AIV)”) are the members of Business Services Holdings.

Pegasus Partners IV, L.P.

(“Pegasus Partners”) is the sole member of PP IV BSH.

Pegasus Investors IV, L.P.

(“Pegasus Investors”) is the general partner of each of Pegasus Partners (AIV) and Pegasus Partners and Pegasus Investors IV GP, L.L.C.

(“Pegasus Investors GP”) is the general partner of Pegasus Investors.

Pegasus Investors GP is wholly owned by Pegasus Capital, LLC (“Pegasus Capital”).

Pegasus Capital may be deemed to be directly or indirectly controlled by Craig Cogut.

The share figure includes the 952,365 shares of common stock issued to and held by Slipstream Funding, LLC in connection with the merger transaction with Creative Realities, LLC.

Share figure also includes 2,187,521 common shares purchasable upon exercise of outstanding warrants issued to and held by Slipstream Communications, LLC.

Nesbit is a director of the Company.

Share figure includes 20,000 shares purchasable upon the exercise of outstanding options.

Harris is a director of the Company.

Share figure includes 9,130 shares purchasable upon the exercise of outstanding warrants and

20,000 shares purchasable upon the exercise of outstanding options.

McGill is a director of the Company and Chairman of the Board.

Share figured includes 41,667 shares purchasable upon the exercise

of outstanding options.

Bell is a director of the Company.

Share figure includes 20,000 shares purchasable upon the exercise of outstanding options.

Mills is a director of the Company and Chief Executive Officer.

Share figure includes 320,000 shares purchasable upon the exercise

of outstanding options.

Logan is the Chief Financial Officer of the Company.

Share figure includes 191,667 shares purchasable upon the exercise of outstanding

McGill, Mills, Bell, Harris, Nesbit and Logan.

Authorized for Issuance Under Equity Compensation Plans

table below sets forth certain information, as of the close of business on December 31, 2021, regarding equity compensation plans (including

individual compensation arrangements) under which our securities were then authorized for issuance.

Number of Securities to be

Issued Upon Exercise of

Outstanding Options,

Warrants and Rights

Weighted-Average

Securities Authorized for Issuance Under Equity Compensation Plans

The table below sets forth certain information, as of the close of business on December 31, 2022, regarding equity compensation plans (including individual compensation arrangements) under which our securities were then authorized for issuance.

Available for

Securities to be

Issuance Under

Exercise Price of

Outstanding Options,

Warrants and Rights

Number of Securities Remaining

Available for Issuance Under Equity

Compensation Plans (excluding

securities reflected in column a)

Plans (excluding

Equity compensation plans approved by stockholders

Equity compensation plans not approved by stockholders

2,868,809 (1)

3,143,326 (2)

shares reflected in the table are issuable upon exercise of outstanding stock options issued under the 2006 Amended and Restated

Equity Incentive Plan or the 2014 Stock Incentive Plan.

number of securities remaining available for issuance under the 2014 Stock Incentive Plan.

ITEM 13 CERTAIN RELATIONSHIPS AND RELATED-PARTY TRANSACTIONS, AND DIRECTOR INDEPENDENCE

February 17, 2022, the Company and its subsidiaries (collectively, the “Borrowers”) refinanced their current debt facilities

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

The Borrowers

include 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 Company raised $10,000 in gross proceeds, or

$9,950 in net proceeds, from entry into a new, 36-month senior secured term loan (the “Acquisition Loan”) with Slipstream

as part of the Credit Agreement, which matures on February 17, 2025 (the “Maturity Date”).

The Acquisition Loan has an interest

rate of 8.0%, with 50.0% warrant coverage (or 2,500,000 warrants).

On the first day of each month, commencing March 1, 2022 through February

1, 2025, the Borrowers will make interest-only payments on the Acquisition Loan (estimated to be $67 per monthly payment).

payments on the Acquisition Loan are payable until the Maturity Date.

The Credit Agreement also provides that the Company’s

outstanding loans from Slipstream, consisting of its pre-existing $4,767 senior secured term loan and $2,418 secured convertible loan,

with an aggregate of $7,185 in outstanding principal and accrued and unpaid interest under such loans, were consolidated into a term loan

(the “Consolidation Term Loan”).

The Consolidation Term Loan has an interest rate of 10.0%, with 75.0% warrant coverage (or

2,694,495 warrants).

On the first day of each month, commencing March 1, 2022 through February 1, 2025, the Borrowers will make interest-only

payments on the Consolidation Term Loan (estimated to be $60 per monthly payment).

Commencing on September 1, 2023, and on the first day

of each month thereafter until the Maturity Date, the Borrowers will make a payment on the Consolidation Term Loan, in an equal monthly

installment of principal sufficient to fully amortize the Consolidation Term Loan in eighteen equal installments (estimated to be $399

per monthly installment).

In connection with the

Acquisition Loan and the 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.

certain circumstances, upon a fundamental transaction of the Company, the holder of the Lender Warrant will have the right to require

the Company to repurchase the Lender Warrant at its fair value using a Black Scholes option pricing formula;

provided that such holder

may not require the Company or its successor entity to repurchase the Lender Warrant for the Black Scholes value in connection with a

fundamental transaction that is not approved by the Company’s Board of Directors, and therefore not within the Company’s

33 Degrees Convenience Connect, Inc., a related

party that was approximately 17.5% owned by a member of our senior management (“33 Degrees”) until September 2021, is

a customer of both equipment and services from the Company.

For the years ended December 31, 2021 and 2020, we had sales of $457 (2.5%

of consolidated sales) and $1,058 (6.1% of consolidated sales), respectively, with 33 Degrees.

Accounts receivable due from 33 Degrees

was $35, or 1.0%, and $40, or 1.2% of consolidated accounts receivable at December 31, 2021 and December 31, 2020, respectively.

of the foregoing transactions were approved by our Board of Directors after full disclosure of any conflicts of interest.

Any directors

that had a conflicting interest in the transactions abstained from approving such matter.

Company does not have a standing nominating committee.

Instead, the entire Board of Directors shares the responsibility of identifying

potential director-nominees to serve on the Board of Directors.

The Board believes the engagement of all directors in this function is

important at this time in the Company’s development in light of the Company’s recent acquisition activities.

Board of Directors has determined that there are presently four “independent” directors as such term is defined in Section

5605(a)(2) of the Nasdaq listing rules, each of whom also meets the criteria for independence set forth in Rule 10A-3(b)(1) under the

Securities Exchange Act of 1934.

The directors whom the board has determined to be independent are Messrs.

Bell, Harris, and Nesbit.

All shares reflected in the table are issuable upon exercise of outstanding stock options issued under the 2006 Amended and Restated Equity Incentive Plan or the 2014 Stock Incentive Plan.

Reflects number of securities remaining available for issuance under the 2014 Stock Incentive Plan.

For information regarding the material features of each of the above plans see Note 13 Stock-based Compensation  in our Consolidated Financial Statements included in this Annual Report.

All other information required by this Item is incorporated by reference from the Proxy Statement.

13 CERTAIN RELATIONSHIPS AND RELATED-PARTY TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information required by this Item is incorporated by reference from the Proxy Statement.

ITEM 14 PRINCIPAL ACCOUNTANT FEES AND SERVICES

currency is rounded to the nearest thousands, except share and per share amounts.)

following table presents fees for audit and other services provided by Deloitte and Touche LLP for 2021 and 2020.

Fees for tax services

were provided by Ernst & Young, LLP beginning in the second quarter of 2018.

Fees to Deloitte and Touche LLP were as follows:

Audit fees (a)

Audit related fees (b)

fees for 2021 and 2020 relate to professional services provided in connection with the audit of our consolidated financial

statements, the reviews of our quarterly condensed consolidated financial statements, and audit services provided in connection with

other regulatory filings.

Audit related fees relate to professional services provided in connection

with the preparation and filing of SEC reports related to our Registered Direct Offering and the Reflect Merger.

were no tax fees paid to Deloitte and Touche LLP.

Tax fees to other service providers consisted of the aggregate fees billed for

tax compliance, tax advice, and tax planning of $223 and $105 for 2021 and 2020, respectively.

Board of Directors pre-approved the audit services rendered by Deloitte and Touche LLP during 2021 and 2020, respectively, and concluded

that such services were compatible with maintaining the auditor’s independence.

The information required by this Item is incorporated by reference from the Proxy Statement.

ITEM 15 EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

“Index to Consolidated Financial Statements” on page F-1 and “Exhibit Index” on page E-1.

“Exhibit Index” on page E-1.

See “Index to Consolidated Financial Statements” on page F-1 and “Exhibit Index” on page 38 .

See “Exhibit Index” on page 38 .

EXHIBIT INDEX

Exhibit  

Agreement and Plan of Merger, dated as of November 12, 2021, by and between the registrant, CRI Acquisition Corporation, Reflect Systems, Inc., and RSI Exit Corporation  (incorporated by reference to Exhibit 2.1 to the registrant’s Current Report on Form 8-K filed on November 15, 2021)

Amendment to Agreement and Plan of Merger, dated as of February 8, 2022, by and among the registrant, CRI Acquisition Corporation, Reflect Systems, Inc., and RSI Exit Corporation (incorporated by reference to Exhibit 2.1 to the registrant’s Current Report on Form 8-K filed February 9, 2022)

Second Amendment to Agreement and Plan of Merger dated as of February 11, 2023 by and among the registrant, Reflect Systems, Inc.

and RSI Exit Corporation (incorporated by reference to Exhibit 10.1 to the registrant's Current Report on Form 8-K filed February 15, 2023)

Articles of Incorporation, as amended (incorporated by reference to registrant’

s Amendment No.

1 to Form SB-2 filed on October 12, 2006).

Articles of Amendment filed September 15, 2014 with the Minnesota Secretary of State to change the name of the registrant (incorporated by reference to Exhibit 3.1 to the registrant’s Form 8-K filed with the SEC on September 17, 2014)

Articles of Amendment filed with the Minnesota Secretary of State on October 14, 2014 to increase the authorized capital stock (incorporated by reference to Exhibit 3.1 to the registrant’s Form 8-K filed with the SEC on October 16, 2014)

Series A-1 Convertible Preferred Stock Certificate of Designation of Preferences, Rights and Limitations filed with the Minnesota Secretary of State on October 30, 3015 (incorporated by reference to Exhibit 4.2 of the registrant’s Registration Statement on Form S-1 filed with the SEC on February 11, 2016)

Articles of Amendment filed on October 17, 2018 with the Minnesota Secretary of State to effect reverse stock split (incorporated by reference to Exhibit 3.3 to the registrant’s registration statement on Form S-1 filed October 22, 2018)

Statement of Cancellation of Certificate of Designation of Series A Convertible Preferred Stock filed with the Minnesota Secretary of State on March 18, 2019 (incorporated by reference to Exhibit 3.1 to the registrant’s Form 8-K filed with the SEC on March 18, 2019)

Statement of Cancellation of Certificate of Designation of Series A-1 Convertible Preferred Stock filed with the Minnesota Secretary of State on March 18, 2019 (incorporated by reference to Exhibit 3.2 to the registrant’s Form 8-K filed with the SEC on March 18, 2019)

Articles of Amendment to effect reverse stock split and reduction of authorized capital filed with the Minnesota Secretary of State on March 22, 2023 (incorporated by reference to Exhibit 3.1 to the registrant's Current Report on Form 8-K filed with the SEC on March 24, 2023)

Amended and Restated Bylaws (incorporated by reference to the registrant’s Current Report on Form 8-K filed on November 2, 2011)

Specimen certificate evidencing shares of Common Stock (incorporated by reference to Exhibit 4.2 of the Registrant’s Registration Statement on Form SB-2 (File No.

Form of Indenture between the registrant and one or more trustees to be named (incorporated by reference to Exhibit 4.4 of the Registrant’s Registration Statement on Form S-3 (File No.

Form of Warrant Issued to Selling Stockholders (November 19, 2018 Issuance date) (incorporated by reference to Exhibit 4.2 of the Registrant’s Registration Statement on Form S-3 (File No.

Warrant dated August 10, 2017, issued in favor of Slipstream Communications, LLC (incorporated by reference to the registrant’s Form 10-Q filed with the SEC on November 14, 2017)

Warrant dated November 13, 2017, issued in favor of Slipstream Communications, LLC (incorporated by reference to the registrant’s Form S-1 filed with the SEC on June 25, 2018) 

Warrant dated January 16, 2018, issued in favor of Slipstream Communications, LLC (incorporated by reference to the registrant’s Form S-1 filed with the SEC on June 25, 2018)

Exhibit  

Warrant to Purchase Common Stock issued to Slipstream Communications, LLC on April 27, 2018 (incorporated by reference to Exhibit 10.31 of the registrant’s Form S-1 filed with the SEC on June 25, 2018).

Warrant to Purchase Common Stock (entered into in connection with Loan and Security Agreement dated August 17, 2016) (incorporated by reference to the registrant’s Quarterly Report on Form 10-Q filed with the SEC on November 21, 2016)

Form of Investor Warrant issued November 19, 2018 (incorporated by reference to Exhibit 4.3 to the registrant’s Amendment No.

5 to Form S-1/A filed with the SEC on November 14, 2018)

Form of Representative’s Warrant (incorporated by reference to Exhibit 4.4 to the registrant’s Amendment No.

3 to Form S-1/A filed with the SEC on October 22, 2018)

Description of Registrant’s Securities (incorporated by reference to Exhibit 4.14 of Registrant’s Annual Report on Form 10-K for the fiscal year ended 12/31/2019)

Form of Pre-Funded Warrant (incorporated by reference to Exhibit 4.1 of the registrant’s Current Report on Form 8-K filed February 4, 2022)

Investor Warrant dated June 30, 2022 (incorporated by reference to Exhibit 10.2 of the registrant's Current Report on Form 8-K filed July 7, 2022)

Lender Warrant dated June 30, 2022 (incorporated by reference to Exhibit 10.1 of the registrant's Current Report on Form 8-K filed July 7, 2022)

Investor Warrant dated June 30, 2022 (incorporated by reference to Exhibit 10.3 of the registrant's Current Report on Form 8-K filed July 7, 2022)

Voting and Lock-up Agreement dated November 12, 2021 among registrant, Reflect Systems, Inc.

and certain stockholders of Reflect incorporated by reference to Exhibit 9.1 to the registrant’s Current Report on Form 8-K filed November 15, 2021)

Voting Agreement dated November 12, 2021 among registrant, Reflect Systems, Inc.

and certain stockholders of registrant (incorporated by reference to Exhibit 9.2 to the registrant’s Current Report on Form 8-K filed November 15, 2021)

Form of Warrant Agency Agreement between the Company and Computershare Trust Company, N.A.

(incorporated by reference to Exhibit 4.5 of the registrant’s registration statement on Form S-1 filed October 22, 2018)

Master Distribution Agreement dated June 19, 2020 by and between the Company and InReality, LLC (incorporated by reference to Exhibit 10.1 of the registrant’s report on Form 8-K filed with the SEC on June 19, 2020)

Employment Agreement dated as of November 12, 2021 by and between the registrant and Rick Mills (incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed November 15, 2021).

Employment Agreement dated as of November 12, 2021 by and between the registrant and Will Logan.

(incorporated by reference to Exhibit 10.2 to the registrant’s Current Report on Form 8-K filed November 15, 2021)**

Form of Securities Purchase Agreement dated February 3, 2022 by and between Creative Realities, Inc.

and the Investors (incorporated by reference to Exhibit 10.1 of the registrant’s Current Report on Form 8-K filed February 4, 2022)

Form of Registration Rights Agreement dated February 3, 2022 by and between Creative Realities, Inc.

and the Investors (incorporated by reference to Exhibit 10.2 of the registrant’s Current Report on Form 8-K filed February 4, 2022)

Second Amended and Restated Loan and Security Agreement by and among the registrant, its subsidiaries and Slipstream Communications, LLC (incorporated by reference to Exhibit 10.1 of the registrant’s Current Report on Form 8-K filed February 18, 2022)

First Amendment to Second Amended and Restated Loan and Security Agreement (incorporated by reference to Exhibit 10.4 to the registrant's Quarterly Report on Form 10-Q filed with the SEC on November 14, 2022)

$10,000,000 Acquisition Term Note (incorporated by reference to Exhibit 10.2 of the registrant’s Current Report on Form 8-K filed February 18, 2022)

Exhibit  

$7,185,319.06 Consolidation Term Note (incorporated by reference to Exhibit 10.3 of the registrant’s Current Report on Form 8-K filed February 18, 2022)

Term Note (2022) (incorporated by reference to Exhibit 10.5 to the registrant's Quarterly Report on Form 10-Q filed with the SEC on November 14, 2022)

Note and Security Agreement (incorporated by reference to Exhibit 10.4 of the registrant’s Current Report on Form 8-K filed February 18, 2022)

First Amendment to Note and Security Agreement (incorporated by reference to Exhibit 10.2 of the registrant's Current Report on Form 8-K filed February 15, 2023)

2014 Stock Incentive Plan, as amended (incorporated by reference to Exhibit A to the registrant's definitive proxy statement on Schedule 14A filed with the SEC on June 12, 2020)

Retention Bonus Plan (incorporated by reference to Exhibit 10.5 of the registrant’s Current Report on Form 8-K filed February 18, 2022)

Form of Retention Bonus Plan Award Agreement (incorporated by reference to Exhibit 10.6 of the registrant’s Current Report on Form 8-K filed February 18, 2022)

Amendment to Stock Option Agreement dated June 15, 2022 between the Company and Rick Mills (incorporated by reference to Exhibit 10.1 to the registrant's Current Report on Form 8-K filed with the SEC on June 17, 2022)

Amendment to Stock Option Agreement dated June 15, 2022 between the Company and Will Logan (incorporated by reference to Exhibit 10.2 to the registrant's Current Report on Form 8-K filed with the SEC on June 17, 2022)

Stock Option Agreement dated June 15, 2022 between the Company and Rick Mills (incorporated by reference to Exhibit 10.3 to the registrant's Current Report on Form 8-K filed with the SEC on June 17, 2022)

Stock Option Agreement dated June 15, 2022 between the Company and Will Logan (incorporated by reference to Exhibit 10.4 to the registrant's Current Report on Form 8-K filed with the SEC on June 17, 2022)

Code of Business Conduct and Ethics (incorporated by reference to Exhibit 14.1 of the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018)

List of Subsidiaries*

Consent of Deloitte & Touche LLP*

Chief Executive Officer Certification pursuant to Exchange Act Rule 13a-14(a).*

Chief Financial Officer Certification pursuant to Exchange Act Rule 13a-14(a).*

Chief Executive Officer Certification pursuant to 18 U.S.C.

Section 1350.*

Chief Financial Officer Certification pursuant to 18 U.S.C.

Section 1350.*

Inline XBRL Instance Document.*

Inline XBRL Taxonomy Extension Schema Document.*

Inline XBRL Taxonomy Extension Calculation Linkbase Document.*

Inline XBRL Taxonomy Extension Definition Linkbase Document.*

Inline XBRL Taxonomy Extension Label Linkbase Document.*

Inline XBRL Taxonomy Extension Presentation Linkbase Document.*

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).*

Filed herewith

Compensatory Plan or arrangement required to be filed pursuant to Item 15(b) of Form 10-K.

This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference into any of the Company’s filings under the Securities Act of 1933, as amended, or the Exchange Act, except as expressly set forth by specific reference in such filing.

Not applicable.

FORM 10-K SUMMARY .

to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed

on its behalf by the undersigned, thereunto duly authorized, in the City of Louisville, State of Kentucky, on March 22, 2022.

Realities, Inc.

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. 

March 30, 2023.

Creative Realities, Inc.

/s/ Richard Mills

Richard Mills

Executive Officer

Financial Officer

accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant, and in the

capacities and on the date indicated.

Executive Officer and Director

Financial Officer (Principal Financial and

Accounting Officer)

of the Board of Directors

/s/ David Bell

/s/ Donald Harris

Donald Harris

TO CONSOLIDATED FINANCIAL STATEMENTS

Chief Executive Officer

/s/ Will Logan

Chief Financial Officer

In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant, and in the capacities and on the date indicated.

/s/ Richard Mills

Chief Executive Officer (Principal Executive Officer)

March 30, 2023

Richard Mills

/s/ Will Logan

Chief Financial Officer (Principal Financial and

March 30, 2023

Principal Accounting Officer)

/s/ Dennis McGill

Chairman of the Board of Directors

March 30, 2023

Dennis McGill

/s/ David Bell

March 30, 2023

David Bell

/s/ Donald Harris

March 30, 2023

Donald Harris

/s/ Steve Nesbit

March 30, 2023

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm (PCAOB ID No.

34 ) F-2 - F-3

Consolidated Financial Statements

Consolidated Balance Sheets F-4

Consolidated Statements of Operations F-5

Consolidated Statements of Shareholders’ Equity F-6

Consolidated Statements of Cash Flows F-7

Notes to Consolidated Financial Statements F-8

OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

the Shareholders and the Board of Directors of Creative Realities, Inc.

on the Financial Statements

have audited the accompanying consolidated balance sheets of Creative Realities, Inc.

and subsidiaries (the "Company") as of

December 31, 2021 and 2020, the related consolidated statements of operations, shareholders’ equity, and cash flows, for each of

the two years in the period ended December 31, 2021, and the related notes (collectively referred to as the "financial statements").

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December

31, 2021 and 2020, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2021,

in conformity with accounting principles generally accepted in the United States of America.

financial statements are the responsibility of the Company's management.

Our responsibility is to express an opinion on the Company's

financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board

(United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities

laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain

reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits,

we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion

on the effectiveness of the Company’s internal control over financial reporting.

Consolidated Balance Sheets

Consolidated Statements of Operations

Consolidated Statements of Shareholders’ Equity

Consolidated Statements of Cash Flows

Notes to Consolidated Financial Statements

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the shareholders and the Board of Directors of Creative Realities, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Creative Realities, Inc.

and subsidiaries (the "Company") as of December 31, 2022 and 2021, the related consolidated statements of operations, shareholders’

equity, and cash flows, for each of the two years in the period ended December 31, 2022 and the related notes (collectively referred to as the "financial statements").

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company's management.

Our responsibility is to express an opinion on the Company's financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error

or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding

the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant

estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits

provide a reasonable basis for our opinion.

critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated

or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial

statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters

does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit

matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Goodwill –

Refer to Notes 2 and 7 to the Financial Statements

Audit Matter Description

Company operates as a single reportable segment, operating segment and reporting unit.

The Company’s evaluation of goodwill for

impairment involves comparing the book value of the reporting unit to its estimated fair value.

The Company’s determination of

estimated fair value of the reporting unit is based primarily on a discounted cash flow model utilizing the income approach.

used the discounted cash flow model to estimate fair value which requires management to make significant estimates and assumptions related

to the valuation of the reporting unit, including assumptions regarding discount rates and forecasts of future revenue and operating

Changes in these assumptions could have a significant impact on either the fair value of the reporting unit, the amount of any

goodwill impairment charge, or both.

The Company’s annual impairment assessment date is September 30.

Accordingly, management performed

an impairment assessment as of September 30, 2021.

The estimated fair value of the reporting unit exceeded the carrying value as of September

30, 2021 and, therefore, no impairment was recognized.

identified the valuation of goodwill as a critical audit matter because of the significant estimates and assumptions management made

to estimate the fair value of the reporting unit and the highly sensitive nature of Company’s operations to changes in demand.

This required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists,

when performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions.

the Critical Audit Matter Was Addressed in the Audit

audit procedures related to the forecasts of future revenues, gross profit, operating income/EBITDA, and capital expenditures, and the

selection of the long-term growth rate and discount rate for the reporting unit included the following, among others:

evaluated the reasonableness of management’s forecasts of revenue, gross profit, operating

income/EBITDA, and capital expenditures by comparing the forecasts to:

(1) historical

revenue, gross profit, operating income/EBITDA, and capital expenditures,

communications to management and the Board of Directors, and

(3) forecasted

information included in industry reports for the Company.

the assistance of our fair value specialists:

evaluated the reasonableness of the discounted cash flow valuation methodology and performed

underlying procedures on the mathematical accuracy of the calculations.

evaluated the reasonableness of the discount rate used in the discounted cash flow model

by testing the underlying source information, developing an independent range of estimated

discount rates and comparing that range to the discount rate selected by the Company.

evaluated the reasonableness of the long-term growth rate used in the discounted cash flow

model by comparing the information used by the Company to third party economic and industry

related information.

Deloitte & Touche LLP

have served as the Company’s auditor since 2020.

REALITIES, INC.

BALANCE SHEETS

thousands, except per share amounts)

Critical Audit Matter Description

The Company operates as a single reportable segment, operating segment and reporting unit.

The Company’s evaluation of goodwill for impairment involves comparing the book value of the reporting unit to its estimated fair value.

The Company’s determination of estimated fair value of the reporting unit is based primarily on a discounted cash flow model utilizing the income approach.

The Company used the discounted cash flow model to estimate fair value which requires management to make significant estimates and assumptions related to the valuation of the reporting unit, including assumptions regarding discount rates and forecasts of future revenue and operating margins.

Changes in these assumptions could have a significant impact on either the fair value of the reporting unit, the amount of any goodwill impairment charge, or both.

The Company’s annual impairment assessment date is September 30. 

The estimated fair value of the reporting unit exceeded the carrying value at September 30, 2022.

As a result of continued depression of the Company’s market price for its common stock, management performed an interim qualitative assessment at December 31, 2022 and concluded there were indicators of potential impairment which required the performance of a quantitative assessment.

Management engaged outside valuation specialists to assist in the estimation of fair value of the reporting unit at December 31, 2022. 

As a result of this assessment, management concluded that the estimated fair value of the reporting unit exceeded the carrying value at December 31, 2022, and therefore, no impairment was recognized.

We identified the valuation of goodwill as a critical audit matter because of the significant estimates and assumptions management made to estimate the fair value of the reporting unit using the discounted cash flow approach. 

This required a high degree of auditor judgment and an increased extent of effort, including the need to involve internal fair value specialists, when performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the significant estimates and assumptions included in the Company’s discounted cash flow valuation models included the following, among others, for both the annual and interim impairment tests:

We evaluated the reasonableness of management’s forecasts of revenue, gross profit, operating income/EBITDA, and capital expenditures by comparing the forecasts to:

historical revenue, gross profit, operating income/EBITDA, and capital expenditures,

internal communications to management and the Board of Directors, and

forecasted information included in industry reports for the Company.

We performed a retrospective review of forecasted assumptions from the prior year to evaluate the credibility of management’s forecasting process.

For significant new revenue contracts, we obtained evidence of the executed contract, project timeline, and project scope, as applicable.

We evaluated changes in forecasted information from the annual impairment date to the interim impairment date and obtained supporting evidence for any significant changes in forecasted information.

With the assistance of our internal fair value specialists:

We evaluated the reasonableness of the discounted cash flow valuation methodology and performed underlying procedures on the mathematical accuracy of the calculations.

We evaluated the reasonableness of the long-term growth rate used in the discounted cash flow model by comparing the information used by the Company to third party economic and industry related information.

We evaluated the reasonableness of the discount rate used in the discounted cash flow model by testing the underlying source information, developing an independent range of estimated discount rates and comparing that range to the discount rate selected by the Company.

We evaluated the reasonableness of the company-specific risk premium used in the discounted cash flow model by comparing the risk premium to a range based on our independent research of the facts and circumstances.

We evaluated the reasonableness of the control premiums used by management and management’s valuation specialists by developing an independent range of control premiums and comparing that range to the rate selected by the Company.

/s/ Deloitte & Touche LLP

Louisville, Kentucky

March 30, 2023

We have served as the Company’s auditor since 2020.

CREATIVE REALITIES, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share amounts)

CURRENT ASSETS

Cash and cash equivalents

$ 1,633  

$ 2,883  

Accounts receivable, net of allowance for doubtful accounts of $ 984 and $ 620 , respectively

3 unchanged sentences

Total current assets

Operating lease right-of-use assets

13,982  

Property and equipment, net

Operating lease right-of-use assets

Intangibles, net

LIABILITIES AND SHAREHOLDERS’ EQUITY

23,752  

26,453  

$ 66,015  

$ 22,881  

LIABILITIES AND SHAREHOLDERS’

CURRENT LIABILITIES

Short-term seller note payable

Accounts payable

$ 3,757  

$ 2,517  

Accrued expenses

2 unchanged sentences

Current maturities of operating leases

Current maturities of financing leases

Short-term portion of Secured Promissory Note

Short-term portion of related party Consolidation Term Loan, net of $ 745 and $ 0 discount, respectively

Short-term related party Term Loan (2022)

Total current liabilities

Long-term Payroll Protection Program note payable

16,496  

Long-term Secured Promissory Note

Long-term related party Acquisition Term Loan, net of $ 1,484 and $ 0 discount, respectively

Long-term related party Consolidation Term Loan, net of $ 840 and $ 0 discount, respectively

Long-term related party loans payable, net of $ 0 and $ 143 discount, respectively

1 unchanged sentence

Long-term obligations under operating leases

Long-term accrued expenses

Contingent acquisition consideration, at fair value

Other liabilities

TOTAL LIABILITIES

SHAREHOLDERS’ EQUITY

40,436  

14,152  

SHAREHOLDERS’

Common stock, $ 0.01 par value, 66,666 shares authorized;

1 unchanged sentence

Additional paid-in capital

75,770  

60,863  

Accumulated deficit

Total shareholders’ equity

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

accompanying Notes to Consolidated Financial Statements.

REALITIES, INC.

STATEMENTS OF OPERATIONS

thousands, except per share amounts)

( 50,409 )  

Total shareholders’

25,579  

TOTAL LIABILITIES AND SHAREHOLDERS’

$ 66,015  

$ 22,881  

See accompanying Notes to Consolidated Financial Statements.

CREATIVE REALITIES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

For the Years Ended

7 unchanged sentences

General and administrative

Bad debt expense/(recovery)

Depreciation and amortization

Lease termination expense

Goodwill impairment

Loss on disposal of fixed assets

Deal and transaction costs

3 unchanged sentences

Interest expense, including amortization of debt discount

Change in fair value of warrant liability

Change in fair value of equity guarantee

Gain on settlement of obligations

Gain/(loss) on fair value of debt

Gain on fair value of debt

Loss on debt waiver consent

Loss on warrant amendment

Other income/(expense), net

Total other income/(expense)

Net income/(loss) before income taxes

Income tax benefit/(expense)

Net income/(loss)

Net income/(loss) per common share - basic

Net income/(loss) per common share - diluted

Net income before income taxes

Income tax expense

Net income per common share - basic

Net income per common share - diluted

Weighted average shares outstanding - basic

Weighted average shares outstanding - diluted

accompanying Notes to Consolidated Financial Statements.

REALITIES, INC.

STATEMENTS OF SHAREHOLDERS’ EQUITY

the years ended December 31, 2021 and 2020

thousands, except shares)

See accompanying Notes to Consolidated Financial Statements.

CREATIVE REALITIES, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS ’

For the years ended December 31, 2022 and 2021

(in thousands, except shares)

Year ended December 31, 2022

3 unchanged sentences

Stock-based compensation - vendors

Conversion of Disbursed Escrow Loan

Gain on Extinguishment of Special Loan

Shares issued via registered direct offering

Shares issued and warrants exercised in private investment in public entity ("PIPE")

Shares issued in Reflect Systems, Inc.

Warrant repricing events

Warrant amendment

Balance as of December 31, 2022

1 unchanged sentence

Balance as of December 31, 2020

Shares issued to directors as compensation

Stock-based compensation

Shares issued via at-the-market offering

Exercise of warrants

Stock-based compensation –

Stock-based compensation - directors

Stock-based compensation - vendors

Conversion of Disbursed Escrow Loan

Gain on Extinguishment of Special Loan

Shares issued via registered direct offering

Balance as of December 31, 2021

accompanying Notes to Consolidated Financial Statements.

REALITIES, INC.

STATEMENTS OF CASH FLOWS

thousands, except share per share amounts)

See accompanying Notes to Consolidated Financial Statements.

CREATIVE REALITIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands, except share per share amounts)

For the Years Ended

Operating Activities:

Net income/(loss)

Adjustments to reconcile net income/(loss) to be used in operating activities:

Adjustments to reconcile net income to be used in operating activities:

Depreciation and amortization

1 unchanged sentence

Stock-based compensation

Allowance for doubtful accounts

Change in excess/obsolete inventory reserve

Change in allowance for doubtful accounts

Employee retention and other government credits

Non-cash interest expense on related party loans

Increase in notes due to in-kind interest

Non-cash receivables from in-process projects

Non-cash application of customer deposits to completed projects

Stock compensation issued to vendors for services

Deferred tax (benefit)/expense

Gain on forgiveness of PPP loan

Gain on forgiveness of Paycheck Protection Program

Gain on settlement of Seller Note

Gain on settlement of other obligation

Loss on disposal of assets

(Gain)/loss on fair value of debt

Goodwill impairment

Loss/(Gain) on settlement of obligations

Changes in fair value of Convertible Loan

Loss on debt waiver consent

Loss on warrant amendment

Gain on change in fair value of contingent consideration

Gain on change in fair value of warrants

Changes to operating assets and liabilities:

1 unchanged sentence

Prepaid expenses and other current assets

Vendor deposits

Operating lease right of use asset

Accounts payable and other current payables

2 unchanged sentences

Customer deposits

Operating lease liabilities

Other liabilities

Net cash provided by / (used in) operating activities

Investing activities

Acquisition of business, net of cash acquired

Purchases of property and equipment

2 unchanged sentences

Financing activities

Proceeds from common stock issuance, net of issuance costs

Proceeds from Payroll Protection Program loan

Principal payments on finance leases

Proceeds from sale of common stock in PIPE, net of offering expenses

Proceeds from sale & exercise of pre-funded warrants in PIPE, net of offering expenses

Proceeds from Acquisition Term Loan, net of offering expenses

Proceeds from Term Loan (2022)

Repayment of seller note

Proceeds from warrant exercise into common stock

Proceeds from common stock issuance, net of issuance costs

Net cash provided by financing activities

Increase in Cash and Cash Equivalents

Decrease in Cash and Cash Equivalents

Cash and Cash Equivalents, beginning of year

Cash and Cash Equivalents, end of year

accompanying Notes to Consolidated Financial Statements.

REALITIES, INC.

TO CONSOLIDATED FINANCIAL STATEMENTS

thousands, except share and per share amounts)

currency is rounded to the nearest thousands except share and per share amounts

See accompanying Notes to Consolidated Financial Statements.

CREATIVE REALITIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share amounts)

All currency is rounded to the nearest thousands except share and per share amounts. On March 27, 2023, the Company effectuated a l-for-3 reverse stock split of its outstanding common stock.

These Notes to Consolidated Financial Statements and the accompanying Consolidated Financial Statements give retroactive effect to the reverse stock split for all periods presented.

The shares of common stock retained a par value of $0.01 per share.

NATURE OF ORGANIZATION AND OPERATIONS

the context otherwise indicates, references in these Notes to the accompanying Consolidated Financial Statements to “we,”

“us,” “our” and “the Company” refer to Creative Realities, Inc.

Unless the context otherwise indicates, references in these Notes to the accompanying Consolidated Financial Statements to “

the Company ”

refer to Creative Realities, Inc.

and its subsidiaries.

of the Company’s Business

Realities, Inc.

is a Minnesota corporation that provides innovative digital marketing technology and solutions to retail companies, individual

retail brands, enterprises and organizations throughout the United States and in certain international markets.

The Company has expertise

in a broad range of existing and emerging digital marketing technologies, as well as the related media management and distribution software

platforms and networks, device management, product management, customized software service layers, systems, experiences, workflows, and

integrated solutions.

Nature of the Company ’

Creative Realities, Inc.

is a Minnesota corporation that provides innovative digital marketing technology and solutions to retail companies, individual retail brands, enterprises and organizations throughout the United States and in certain international markets.

The Company has expertise in a broad range of existing and emerging digital marketing technologies, as well as the related media management and distribution software platforms and networks, device management, product management, customized software service layers, systems, experiences, workflows, and integrated solutions.

Our technology and solutions include:

digital merchandising systems and omni-channel customer engagement systems,

interactive digital shopping assistants, advisors and kiosks, and other interactive marketing technologies such as mobile, social media,

point-of-sale transactions, beaconing and web-based media that enable our customers to transform how they engage with consumers.

expertise in a broad range of existing and emerging digital marketing technologies, as well as the following related aspects of our business:

digital merchandising systems and omni-channel customer engagement systems, interactive digital shopping assistants, advisors and kiosks, and other interactive marketing technologies such as mobile, social media, point-of-sale transactions, beaconing and web-based media that enable our customers to transform how they engage with consumers.

We have expertise in a broad range of existing and emerging digital marketing technologies, as well as the following related aspects of our business:

content, network management, and connected device software and firmware platforms;

3 unchanged sentences

and proprietary processes and automation tools.

Our main operations are conducted directly through

Creative Realities, Inc., and under our wholly owned subsidiaries Allure Global Solutions, Inc., a Georgia corporation, and Creative Realities

Canada, Inc., a Canadian corporation, and Reflect Systems, Inc., a Delaware corporation, which was acquired on February 17, 2022.

Acquisition of Reflect

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

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.

Reflect provides digital

signage solutions, including software, strategic and media services to a wide range of companies across the retail, financial, hospitality

and entertainment, healthcare, and employee communications industries in North America.

Reflect offers digital signage platforms, including

ReflectView, a platform used by companies to power hundreds of thousands of active digital displays.

Through its strategic services, Reflect

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

assists customers with monetizing their digital advertising networks.

Subject to the terms and

conditions of the Merger Agreement, upon the closing of the Merger, Reflect stockholders as of to the effective time of the Merger collectively

received from the Company, in the aggregate, the following Merger consideration:

(i) $16,166 payable in cash, (ii) 2,333,334 shares of

common stock of Creative Realities (valued based on an issuance price of $2 per share) (the “CREX Shares”), (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) 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.

In connection with the Merger, the Company adopted

a Retention Bonus Plan and raised capital to, among other things, pay the cash portion of the Merger consideration.

On February 3, 2022, the Company entered into a

securities purchase agreement (the “Securities Purchase Agreement”) with a purchaser (the “Purchaser”), pursuant

to which the Company agreed to issue and sell to the Purchaser, in a private placement priced at-the-market under Nasdaq rules, (i) 1,315,000

shares (the “Shares”) of the Company’s common stock, par value $0.01 per share (the “Common Stock”) and

accompanying warrants to purchase an aggregate of 1,315,000 shares of Common Stock, and (ii) pre-funded warrants to purchase up to an

aggregate of 5,851,505 shares of Common Stock (the “Pre-Funded Warrants”) and accompanying warrants to purchase an aggregate

of 5,851,505 shares of Common Stock (collectively, the “Private Placement”).

The accompanying warrants to purchase Common

Stock are referred to herein collectively as the “Common Stock Warrants.” Under the Securities Purchase Agreement, each Share

and accompanying warrants to purchase Common Stock were sold together at a combined price of $1.535, and each Pre-Funded Warrant and accompanying

warrants to purchase Common Stock were sold together at a combined price of $1.5349, for gross proceeds of approximately $11,000 before

deducting placement agent fees and estimated offering expenses payable by the Company.

The net proceeds from the Private Placement were

used to fund, in part, payment of the closing cash consideration in the Merger.

February 17, 2022, the Company and its subsidiaries (collectively, the “Borrowers”) refinanced their current debt facilities

with Slipstream, pursuant to the Credit Agreement, and raised $ 10,000 in gross proceeds with a maturity date of February 1, 2025 .

Credit Agreement also provides that the Company’s outstanding loans from Slipstream, consisting of its pre-existing $ 4,767 senior

secured term loan and $ 2,418 secured convertible loan, with an aggregate of $ 7,185 in outstanding principal and accrued and unpaid interest

under such loans, were consolidated into a Consolidation Term Loan with a maturity date of February 1, 2025.

February 17, 2022, in connection with the closing of the acquisition of Reflect, the Company issued to RSI Exit Corporation (“Stockholders’

Representative”), the representative of Reflect stockholders, a $ 2,500 Note and Security Agreement (the “Secured Promissory

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 17, 2022, for twelve

months with any remaining or unpaid principal due and payable on February 15, 2023.

See Note 8 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.

believes that, based on (i) the execution of the Equity Financing, (ii) the refinancing of our debt as part of the Debt Financing, including

extension of the maturity date on our term loans, and (iii) our operational forecast through 2022 following completion of the Reflect

Acquisition, that we can continue as a going concern through at least March 31, 2023.

However, given our historical net losses and cash

used in operating activities, we obtained a continued support letter from Slipstream through March 31, 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

Our main operations are conducted directly through Creative Realities, Inc., and under our wholly owned subsidiaries Allure Global Solutions, Inc., a Georgia corporation, Creative Realities Canada, Inc., a Canadian corporation, and Reflect Systems, Inc., a Delaware corporation.

Liquidity and Financial Condition

The accompanying Consolidated Financial Statements have been prepared on the basis of the realization of assets and the satisfaction of liabilities and commitments in the normal course of business and do not include any adjustments to the recoverability and classifications of recorded assets and liabilities as a result of uncertainties.

At December 31, 2022, we have an accumulated deficit of ($ 50,409 ), negative working capital of ( $ 2,514 ) and cash of $ 1,633 .

For the year ended December 31, 2022, we incurred an operating loss of ($ 2,480 ) and cash outflows from operations of ($ 708 ).

Our history of operating losses and near term cash obligations are indicators of substantial doubt about our ability to continue as a going concern. We obtained a continued support letter from Slipstream Communications, LLC ("Slipstream") through March 31, 2024, which alleviated the substantial doubt about our ability to continue as a going concern. 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 POLICIES

summary of the significant accounting policies consistently applied in the preparation of the accompanying Consolidated Financial Statements

A summary of the significant accounting policies consistently applied in the preparation of the accompanying Consolidated Financial Statements follows:

Basis of Presentation

accompanying Consolidated Financial Statements have been prepared in accordance with the instructions to Form 10-K and Article 8 of Regulation

S-X and include all of the information and disclosures required by generally accepted accounting principles in the United States of America

(“GAAP”) for annual financial reporting.

Consolidated Financial Statements include the accounts of Creative Realities, Inc.

and our wholly owned subsidiaries Allure, and Creative

Realities (Canada), Inc.

The accompanying Consolidated Financial Statements have been prepared in accordance with the instructions to Form 10 -K and Article 8 of Regulation S- X and include all of the information and disclosures required by generally accepted accounting principles in the United States of America (“GAAP”) for annual financial reporting.

The Consolidated Financial Statements include the accounts of Creative Realities, Inc.

and our wholly owned subsidiaries Allure, Creative Realities (Canada), Inc., and Reflect Systems, Inc.

All intercompany balances and transactions have been eliminated in consolidation, as applicable.

Revenue Recognition

recognize revenue in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”)

We recognize revenue in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 606,  

Revenue from Contracts with Customers , applying the five -step model.

an arrangement involves multiple performance obligations, the items are analyzed to determine the separate units of accounting, whether

the items have value on a standalone basis and whether there is objective and reliable evidence of their standalone selling price.

total contract transaction price is allocated to the identified performance obligations based upon the relative standalone selling prices

of the performance obligations.

The standalone selling price is based on an observable price for services sold to other comparable customers,

when available, or an estimated selling price using a cost plus margin approach.

Company estimates the amount of total contract consideration it expects to receive for variable arrangements by determining the most

likely amount it expects to earn from the arrangement based on the expected quantities of services it expects to provide and the contractual

pricing based on those quantities.

The Company only includes some or a portion of variable consideration in the transaction price when

it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated

with the variable consideration is subsequently resolved.

The Company considers the sensitivity of the estimate, its relationship and

experience with the client and variable services being performed, the range of possible revenue amounts and the magnitude of the variable

consideration to the overall arrangement.

If an arrangement involves multiple performance obligations, the items are analyzed to determine the separate units of accounting, whether the items have value on a standalone basis and whether there is objective and reliable evidence of their standalone selling price.

The total contract transaction price is allocated to the identified performance obligations based upon the relative standalone selling prices of the performance obligations.

The standalone selling price is based on an observable price for services sold to other comparable customers, when available, or an estimated selling price using a cost plus margin approach.

The Company estimates the amount of total contract consideration it expects to receive for variable arrangements by determining the most likely amount it expects to earn from the arrangement based on the expected quantities of services it expects to provide and the contractual pricing based on those quantities.

The Company only includes some or a portion of variable consideration in the transaction price when it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved.

The Company considers the sensitivity of the estimate, its relationship and experience with the client and variable services being performed, the range of possible revenue amounts and the magnitude of the variable consideration to the overall arrangement.

The Company receives variable consideration in very few instances.

is recognized when a customer obtains control of promised goods or services under the terms of a contract and is measured as the amount

of consideration the Company expects to receive in exchange for transferring goods or providing services.

The Company does not have any

material extended payment terms as payment is due at or shortly after the time of the sale, typically ranging between thirty and ninety

Observable prices are used to determine the standalone selling price of separate performance obligations or a cost plus margin

approach when one is not available.

Sales, value-added and other taxes collected concurrently with revenue producing activities are excluded

from revenue.

Company recognizes contract assets or unbilled receivables related to revenue recognized for services completed but not yet invoiced

to the clients.

A contract liability is recognized as deferred revenue when the Company invoices clients in advance of performing the

related services under the terms of a contract.

Deferred revenue is recognized as revenue when the Company has satisfied the related

performance obligation.

Company uses the practical expedient for recording an immediate expense for incremental costs of obtaining contracts, including certain

design/engineering services, commissions, incentives and payroll taxes, as these incremental and recoverable costs have terms that do

not exceed one year.

are stated at the lower of cost or net realizable value, determined by the first-in, first-out (FIFO) method, and consist of the following:

Revenue is recognized when a customer obtains control of promised goods or services under the terms of a contract and is measured as the amount of consideration the Company expects to receive in exchange for transferring goods or providing services.

The Company does not have any material extended payment terms as payment is due at or shortly after the time of the sale, typically ranging between thirty and ninety days.

Observable prices are used to determine the standalone selling price of separate performance obligations or a cost plus margin approach when one is not available.

Sales, value-added and other taxes collected concurrently with revenue producing activities are excluded from revenue.

The Company recognizes contract assets or unbilled receivables related to revenue recognized for services completed but not yet invoiced to the clients.

A contract liability is recognized as deferred revenue when the Company invoices clients in advance of performing the related services under the terms of a contract.

Deferred revenue is recognized as revenue when the Company has satisfied the related performance obligation. 

The Company uses the practical expedient for recording an immediate expense for incremental costs of obtaining contracts, including certain design/engineering services, commissions, incentives and payroll taxes, as these incremental and recoverable costs have terms that do not exceed one year.

Inventories are stated at the lower of cost or net realizable value, determined by the first -in, first -out (FIFO) method, and consist of the following:

Raw materials, net of reserve of $ 1,777 and $ 502 , respectively

Inventory on consignment with distributors

$ 1,671  

$ 1,583  

Work-in-process

Total inventories

$ 2,267  

$ 1,880  

During the year ended December 31, 2022, the Company increased its reserves for obsolete inventory by $ 1,275 , of which $ 1,249 related to Safe Space Solutions.

The Company is no longer actively promoting the sale of our Safe Space Solutions or purchasing inventory to support such solutions.

Impairment of Long-Lived Assets

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.

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.

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

actual results could vary significantly from such estimates.

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.

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.

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

and diluted income/(loss) per common share for all periods presented is computed using the weighted average number of common shares outstanding.

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 6,972,020

and 7,040,709 at December 31, 2021 and 2020, respectively were excluded from the computation of income/(loss) per share as all options

and warrants were anti-dilutive due to the net loss in 2020 and no options or warrants were in the money for 2021.

In calculating diluted

earnings per share for the years ended December 31, 2021 and 2020, 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 Special Loan as the Company has both

the intent and ability to make the scheduled amortization payments on the Special Loan.

income taxes are recognized in the financial statements for the tax consequences in future years of differences between the tax basis

of assets and liabilities and their financial reporting amounts based on enacted tax laws and statutory tax rates.

Temporary differences

arise from net operating losses, differences in basis of intangibles, stock-based compensation, reserves for uncollectible accounts receivable

and inventory, differences in depreciation methods, and accrued expenses.

Valuation allowances are established when necessary to reduce

deferred tax assets to the amount expected to be realized.

The Company accounts for uncertain tax positions utilizing an established

recognition threshold and measurement attributes for the financial statement recognition and measurement of a tax position taken or expected

to be taken in a tax return.

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 7,360,271 and 2,324,007 at December 31, 2022 and 2021 , respectively 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.

Deferred income taxes are recognized in the financial statements for the tax consequences in future years of differences between the tax basis of assets and liabilities and their financial reporting amounts based on enacted tax laws and statutory tax rates.

Temporary differences arise from net operating losses, differences in basis of intangibles, stock-based compensation, reserves for uncollectible accounts receivable and inventory, differences in depreciation methods, and accrued expenses.

Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.

The Company accounts for uncertain tax positions utilizing an established recognition threshold and measurement attributes for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.

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

Goodwill and Definite-Lived Intangible Assets

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, 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 ).

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, but instead tested for impairment at least annually.

The Company uses an annual measurement date of September 30 to assess impairment of goodwill and indefinite-lived intangible assets, or as indicators are identified.

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

Use of Estimates

preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported

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

reported amounts of revenues and expenses during the reporting periods.

Our significant estimates include:

the allowance for doubtful

accounts, valuation allowances related to deferred taxes, the fair value of acquired assets and liabilities, the fair value of liabilities

reliant upon the appraised fair value of the Company, valuation of stock-based compensation awards and other assumptions and estimates

used to evaluate the recoverability of long-lived assets, goodwill and other intangible assets and the related amortization methods and

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.

Our significant estimates include: warrant liability valuation, contingent purchase consideration valuation, the allowance for doubtful accounts, valuation allowances related to deferred taxes, the fair value of acquired assets and liabilities, the fair value of liabilities reliant upon the appraised fair value of the Company, valuation of stock-based compensation awards and other assumptions and estimates used to evaluate the recoverability of long-lived assets, goodwill and other intangible assets and the related amortization methods and periods.

Actual results could differ from those estimates.

Property and Equipment

and equipment are carried at cost, less accumulated depreciation and amortization.

Depreciation is provided for in amounts sufficient

to relate the cost of depreciable assets to operations over the estimated service lives, principally using straight-line methods.

improvements are amortized over the shorter of the life of the improvement or the lease term, using the straight-line method.

and equipment consist of the following at December 31, 2021 and 2020:

Property and equipment are carried at cost, less accumulated depreciation and amortization.

Depreciation is provided for in amounts sufficient to relate the cost of depreciable assets to operations over the estimated service lives, principally using straight-line methods.

Leasehold improvements are amortized over the shorter of the life of the improvement or the lease term, using the straight-line method.

Property and equipment consist of the following at December 31, 2022 and 2021 :

Leasehold improvements

3 unchanged sentences

accumulated depreciation and amortization

( 457 )  

Net property and equipment

estimated useful lives used to compute depreciation and amortization are as follows:

life assigned

The estimated useful lives used to compute depreciation and amortization are as follows:

Useful life assigned (in years)

Furniture and fixtures

1 unchanged sentence

Shorter of 5 years or term of lease

Depreciation expense was $ 109 and $ 124 for the

years ended December 31, 2021 and 2020, respectively.

Depreciation expense was $ 131  and $ 109 for the years ended December 31, 2022 and 2021 , respectively. 

Research and Development and Software Development Costs

Research and development expenses consist primarily

of development personnel and non-employee contractor costs related to the development of new products and services, enhancement of existing

products and services, quality assurance and testing.

The Company capitalizes its costs incurred for additional functionality to its internal

Research and development expenses consist primarily of development personnel and non-employee contractor costs related to the development of new products and services, enhancement of existing products and services, quality assurance and testing.

The Company capitalizes its costs incurred for additional functionality to its internal software.

We capitalized approximately $ 4,444 and $ 1,140 for the years ended December 31, 2022 and 2021 , respectively.

These software development

costs include both enhancements and upgrades of our client-based systems including functionality of our internal information systems to

aid in our productivity, profitability and customer relationship management.

We are amortizing these costs over 3 years once the new projects

are completed and placed in service.

These software development costs include both enhancements and upgrades of our client-based systems including functionality of our internal information systems to aid in our productivity, profitability and customer relationship management.

We are amortizing these costs over 3 years once the new projects are completed and placed in service.

These costs are included in intangible assets, net on the Consolidated Balance Sheets.

account for leases in accordance with ASU No.

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

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.

leases are included in operating lease right-of-use assets, current maturities of operating leases, and long-term obligations under operating

leases on our Consolidated Balance Sheets.

Finance leases are included in property and equipment, net, current maturities of financing

leases, and long-term obligations under financing leases on our Consolidated Balance Sheets.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

October 2021, the FASB issued ASU No.

Business Combinations

Accounting for acquisitions requires us to recognize separately from goodwill the assets acquired and the liabilities assumed at their acquisition date fair values.

Goodwill as of the acquisition date is measured as the excess of consideration transferred over the net acquisition date fair values of the assets acquired and the liabilities assumed.

While we use our best estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition date as well as contingent consideration, where applicable, our estimates are inherently uncertain and subject to refinement.

As a result, during the measurement period, which may be up to one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill.

Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to our Consolidated Statements of Operations.

Contingent Consideration

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. 

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS  

Recently adopted

On January 

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

2021 - 08,  

Business Combinations (Topic 805 ):

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) .

This guidance will be effective for us in the first quarter

of 2023 on a prospective basis, with early adoption permitted.

We are currently evaluating the impact of the new guidance on our consolidated

financial statements.

May 2021, the FASB issued ASU No.

2021-04, Modification of equity-classified written call options , which clarifies how an

issuer should account for modifications made to equity-classified written call options (e.g., warrants to purchase an issuer’s

common stock).

The guidance in the ASU requires the issuer to treat a modification of an equity-classified warrant that does not cause

the warrant to become liability-classified as an exchange of the original warrant for a new warrant.

This guidance applies whether the

modification is structured as an amendment to the terms and conditions of the warrant or as termination of the original warrant and issuance

of a new warrant.

This guidance will be effective for us in the first quarter of 2022.

We are currently evaluating the disclosure requirements

and potential impact on our consolidated financial statements, but anticipate there may be impacts as the Company has issued warrants

in prior debt financing activities, including in both our Equity Financing and Debt Financings.

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.

guidance will be effective for us in the first quarter of 2024 on a full or modified retrospective basis, with early adoption

We are currently evaluating the disclosure requirements and potential impact on our consolidated financial statements.

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.

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 Consolidated Financial Statements.

In June 2016, the FASB issued ASU No.

2016 - 13,  

Financial Instruments —

Credit Losses , which requires entities to estimate expected lifetime credit losses on financial assets and provide expanded disclosures. 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 and accounting requirements related to adopting this guidance,

given the transition from an incurred loss to an expected loss model.

We adopted ASU 2016 - 13 on January 1, 2023. 

The adoption of this new standard did not have a material impact on our 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.

We are currently evaluating the disclosure requirements and potential impact on our Consolidated Financial Statements.

REVENUE RECOGNITION

Company applies ASC 606 for revenue recognition.

The following table disaggregates the Company’s revenue by major source for the

years ended December 31, 2021 and 2020:

The Company applies ASC 606 for revenue recognition.

The following table disaggregates the Company’s revenue by major source for the years ended December 31, 2022 and 2021 :

(in thousands)

$ 19,895  

$ 9,450  

Installation Services

Software Development Services

License Revenue

Managed Services

14,320  

Total Services

23,455  

Total Hardware and Services

hardware sales

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 revenue.

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

services also includes engineering services performed as part of an installation project.

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.

design and development services

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

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

$ 43,350  

$ 18,437  

System hardware sales

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 revenue. 

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.

Installation services revenues are classified as “Installation Services”

within our disaggregated revenue.

Software design and development services

Software and software license sales are 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.

as a service includes revenue from software licensing and delivery in which software is licensed on a subscription basis and is centrally

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

We account for revenue from these services in accordance with ASC 985-20-15-5 and recognize revenue ratably over the performance

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

and support services

Company sells support services which include access to technical support personnel for software and hardware troubleshooting.

offers a hosting service through our network operations center, or NOC, allowing the ability to monitor and support its customers’

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

within our disaggregated revenue.

Software as a service license sales

Software as a service includes revenue from software licensing and delivery in which software is licensed on a subscription basis and is centrally hosted by the Company.

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 revenue are classified as “Managed Services”

within our disaggregated revenue.

Software as a service perpetual license sales

Perpetual license sales includes revenue from the sale of a perpetual license to customers that host their own instances of our software.

These services traditionally are accompanied by the sale of maintenance and support services contracts.

Perpetual license revenue is classified as "License Revenue" within our disaggregated revenue.

Maintenance and support services

The Company sells support services which include access to technical support personnel for software and hardware troubleshooting.

The Company offers a hosting service through our network operations center, or NOC, allowing the ability to monitor and support its customers’

networks 7 days a week, 24 hours a day.

These contracts are generally 12 - 36 months in length.

Revenue is recognized over the term of

the agreement in proportion to the costs incurred in fulfilling performance obligations under the contract.

Maintenance and Support revenues

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

and support fees are based on the level of service provided to end customers, which can range from monitoring the health of a customer’s

network to supporting a sophisticated web-portal to managing the end-to-end hardware and software of a digital marketing system.

agreements are renewable by the customer.

Rates for maintenance and support, including subsequent renewal rates, are typically established

based upon a fee per location, per device, or a specified percentage of net software license fees as set forth in the arrangement.

contracts are generally 12-36 months in length.

Revenue is recognized over the term of the agreement in proportion to the costs incurred in fulfilling performance obligations under the contract.

Maintenance and Support revenues are classified as “Managed Services”

within our disaggregated revenue.

Maintenance and support fees are based on the level of service provided to end customers, which can range from monitoring the health of a customer’s network to supporting a sophisticated web-portal to managing the end-to-end hardware and software of a digital marketing system.

These agreements are renewable by the customer.

Rates for maintenance and support, including subsequent renewal rates, are typically established based upon a fee per location, per device, or a specified percentage of net software license fees as set forth in the arrangement.

These contracts are generally 12 - 36 months in length.

Revenue is recognized ratably and evenly over the service period.

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.

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.

Media revenues are derived from selling (i) sponsorship packages, including mobile takeover or physical presence, or (ii) advertising space to customers on digital displays or other outdoor structures, each within physical venues. We generally do not  own the physical structures on which we display advertising for our customers but instead sell advertising or sponsorship opportunities on behalf of our media network owners to our brand customers.

Media revenue services are recognized either on a straight-line basis over the available hours of advertising during the contracted period, or at the time of an event in the case of sponsorships.

Our media revenue contracts with customers range from four weeks to 

three years and billing commences at the beginning of the contract term, with payment generally due within 

ninety ( 90 ) days of billing.

For the majority of our contracts, transaction prices are explicitly stated.

Any contracts with transaction prices that contain multiple performance obligations are allocated primarily based on a relative standalone selling price basis. 

Any deferred revenues primarily consist of revenues paid in advance of being earned.

On a contract-by-contract basis, we evaluate whether we should be considered the principal (i.e., report revenues on a gross basis) or an agent (i.e., report revenues on a net basis).

We are considered the principal in our arrangements and report revenues on a gross basis, wherein the amounts billed to customers are recorded as revenues and amounts paid to network owners are recorded as expenses.

We are considered the principal because we control the advertising space before and after the contract term, are primarily responsible to our customers, and have discretion in pricing.

For revenues generated through the use of a subcontracted advertising agency, commissions are calculated based on a stated percentage of gross advertising revenue and reported in the Consolidated Statement of Operations within Sales and Marketing expenses.

FAIR VALUE MEASUREMENT

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.

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.

The three hierarchy levels are defined as follows:

Level 1 —

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

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

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;

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

3 — Valuations based on inputs that are unobservable and involve management judgment and the reporting entity’s own assumptions

about market participants and pricing.

Company previously recorded warrant liabilities that were measured at fair value on a recurring basis using a binomial option pricing

All of the Company’s outstanding warrants classified as liabilities expired during 2019.

discussed in Note 7 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.

discussed in Note 8 Loans Payable , the Special Loan is reported at fair value.

This liability is deemed to be a Level 3 valuation.

Certain unobservable inputs into the calculation of the fair value of this liability include an estimate of the fair value of the Company

at a future date using a discounted cash flow model, discount rate assumptions, and an estimation of the likelihood of conversion of

the Special Loan.

We utilized a discounted cash flow analysis in updating our fair value analysis of the Convertible Loan, resulting

in recognition of a $ 166 gain during 2021 from the change in fair value of the liability and a corresponding decrease in the debt balance

recorded in the Condensed Consolidated Balance Sheet.

The Company recorded a $ 93 loss during 2020 related to the fair value of the Special

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.

The Company previously recorded warrant liabilities that were measured at fair value on a recurring basis using a binomial option pricing model.

The calculation of the fair value of the contingent consideration contains inputs which are unobservable and involve management judgment and are considered Level 3 estimates.

Additionally, the separately identifiable intangible assets rely on a discounted cash flow model which utilizes inputs including the calculation of the weighted average cost of capital and management’s forecast of future financial performance which are unobservable and involve management judgment and are considered Level 3 estimates.

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.

The Convertible Loan is deemed to be a Level 3 valuation.

Certain unobservable inputs into the calculation of the fair value of this liability include an estimate of the fair value of the Company at a future date using a discounted cash flow model, discount rate assumptions, and an estimation of the likelihood of conversion of the Convertible Loan.

The Convertible Loan was refinanced into the Consolidation Term Loan in February 

The calculation of the fair value of the warrant liability contains valuation inputs which are based on observable inputs (other than Level 1 prices) and are considered Level 2 estimates.

The liability warrants were converted to equity warrants effective June 30, 2022.

SUPPLEMENTAL CASH FLOW STATEMENT INFORMATION

Supplemental non-cash Investing and Financing activities

Capitalized software in accounts payable

Property and equipment in accounts payable

Conversion of disbursed escrow loan into common stock

3 unchanged sentences

Cash paid during the period for:

$ 1,350  

Income taxes, net

INTANGIBLE ASSETS AND GOODWILL

assets consisted of the following at December 31, 2021 and December 31, 2020:

Intangible Assets

Intangible assets consisted of the following at December 31, 2022 and December 31, 2021 :

Technology platform

$ 9,765  

$ 4,635  

Purchased and developed software

1 unchanged sentence

Customer relationships

15,000  

Trademarks and trade names

Total amortizable intangible assets

35,151  

11,399  

13,547  

Accumulated amortization

11,399  

Net book value of amortizable intangible assets

For the years ended December 31, 2021 and 2020,

amortization of intangible assets charged to operations was $ 1,251 and $ 1,330 , respectively.

For the year ended December 31, 2021, the

Company wrote-off a $ 380 fully amortized trade name asset and a $ 1,370 fully amortized customer list asset and the related accumulated

amortization for each related to ConeXus World Global, LLC, an entity dissolved by the Company during 2021.

There was no impact on the

Company’s Condensed Consolidated Balance Sheet or Condensed Consolidated Statement of Operations during the period.

amortization is as follows:

$ 23,752  

$ 4,850  

For the years ended December 31, 2022 and 2021 , amortization of intangible assets charged to operations was $ 2,702 and $ 1,251 , respectively.

For the year ended December 31, 2021, the Company wrote-off a $ 380 fully amortized trade name asset and a $ 1,370 fully amortized customer list asset and the related accumulated amortization for each related to a former wholly owned subsidiary of the Company, ConeXus World Global, LLC, an entity dissolved by the Company during 2021.

There was no impact on the Company’s Consolidated Balance Sheet or Consolidated Statement of Operations during the period. 

On February 17, 2022, the Company acquired intangible assets as a result of the Merger in accordance with ASC 805 Business Combinations .

Estimated amortization is as follows:

Estimated Future

Year ending December 31,

Estimated Future Amortization

assets include the following and are being amortized over their estimated useful lives as follows:

$ 3,272  

12,088  

Intangible assets include the following and are being amortized over their estimated useful lives as follows:

Acquired Intangible Asset:

Technology platform and patents

7 - 10  

Purchased and developed software

Customer relationships

represents the excess of the purchase price over the fair value of net assets acquired.

Goodwill is subject to an impairment review at

a reporting unit level, on an annual basis as of the end of September of each fiscal year, or when an event occurs, or circumstances

change that would indicate potential impairment.

The Company has only one reporting unit, and therefore the entire goodwill is allocated

to that reporting unit.

The Company assessed the carrying value of goodwill

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

Fair value of the reporting unit

was estimated using 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 preceding three years.

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 was not considered to be impaired at September 30, 2021.

Company recognizes that any changes in our projected 2022 and future 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

further 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 is impaired.

Impairment Assessment – March 31, 2020

the excess fair value identified in our 2019 annual impairment assessment, we determined that the reduced cash flow projections and the

significant decline in our market capitalization as a result of the COVID-19 pandemic during the three months ended March 31, 2020 indicated

that an impairment loss may have been incurred during the first quarter.

Therefore, we qualitatively assessed whether it was more likely

than not that the goodwill was impaired as of March 31, 2020.

We reviewed our previous forecasts and assumptions based on our current

projections that are subject to various risks and uncertainties, including:

(1) forecasted revenues, expenses and cash flows, including

the duration and extent of impact to our business and our alliance partners from the COVID-19 pandemic, (2) current discount rates, (3)

the reduction in our market capitalization, (5) changes to the regulatory environment and (6) the nature and amount of government support

that will be provided.

As a result of this qualitative assessment, we concluded that indicators of impairment were present and that a

quantitative interim impairment assessment of our goodwill was necessary as of March 31, 2020.

a result of the adoption of ASU 2017-04, Intangibles—Goodwill and Other (Topic 350):

Simplifying the Test for Goodwill Impairment

the impairment test consists solely of comparing the carrying value of the reporting unit with its fair value and recording impairment,

if identified.

fair value of the reporting unit was estimated via the income approach.

Under the income approach, fair value is determined based on

the present value of estimated future cash flows, discounted at an appropriate risk-adjusted rate.

We use our internal forecasts to estimate

future cash flows and include an estimate of long-term future growth rates based on our most recent views of the long-term outlook for

our industry.

Actual results may differ from those assumed in our forecasts.

We derive our discount rates using a capital asset pricing

model and by analyzing published rates relevant to our business to estimate the cost of equity financing.

We use discount rates that

are commensurate with the risks and uncertainty inherent in the respective businesses and in our internally developed forecasts.

a discount rate of 14.5 % in our valuation completed as of March 31, 2020.

our outlook for the digital signage industry over the long term remains strong, we have experienced rapid and immediate deterioration

in our short term business as a result of the COVID-19 pandemic, generating increased uncertainty across our customer base in many of

our key vertical markets.

The elective and forced closures of businesses across the United States has resulted in reduced demand for

our services, which primarily assist business in engaging with their end customers in a physical space through digital technology.

elimination and minimization of public gatherings has materially impacted demand for products and services in our movie theater, sports

arena and large entertainment markets.

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

projected earnings and cash flows, leading to an implied fair value of goodwill substantially below the carrying value.

Therefore, during

the three months ended March 31, 2020, we recorded a non-cash impairment loss of $ 10,646 .

We recorded the estimated impairment losses

in the caption “Goodwill impairment” in our Consolidated Statement of Operations.

Impairment Assessment – September 30, 2020

Company assessed the carrying value of goodwill at the reporting unit level based on an estimate of the fair value of the respective

reporting unit.

Fair value of the reporting unit was estimated using 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 preceding three years.

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, 2020.

3 - 15  

Goodwill represents the excess of the purchase price over the fair value of net assets acquired.

Goodwill is subject to an impairment review at a reporting unit level, on an annual basis as of the end of September of each fiscal year, or when an event occurs, or circumstances change that would indicate potential impairment.

The Company has only one reporting unit, and therefore the entire goodwill is allocated to that reporting unit.

The Company assessed the carrying value of goodwill at the reporting unit level based on an estimate of the fair value of the respective reporting unit.

Fair value of the reporting unit was estimated using 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 preceding three years.

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 was not considered to be impaired at September 30, 2022.

At December 31, 2022, we concluded the decline in our market value represented an interim indicator of potential impairment. 

Based on a quantitative assessment of our fair value performed at December 31, 2022, using the same approach as our annual impairment performed at September 30, described above, we concluded that the carrying value of our goodwill did not exceed the reporting unit fair value.

While our overall business performance has been consistent with our expectations, both before and after the acquisition of Reflect, we believe a significant portion of the decline in our market price relates primarily to several macroeconomic factors including:

( 1 ) market wide recessionary fears, ( 2 ) rapid inflation fears, which often have an outsized, direct negative impact on the share price of high-growth companies with limited or negative cash flow from operations, ( 3 ) a lack of comprehension by the markets of the recent Merger with Reflect and related financing transaction, and ( 4 ) the sale of over 

2,333,334 shares of our common stock into the market by a new investor, resulting in significant negative volume and price pressure on the stock unrelated to the Company fundamentals.

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 December 31, 2022.

Should our market price remain at this level for an extended period of time; however, there could be potential future impairment.

The Company recognizes that any changes in our projected 2023 and future 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 further 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 is impaired.

LOANS PAYABLE

outstanding debt with detachable warrants, as applicable, are shown in the table below.

The outstanding debt with detachable warrants, as applicable, are shown in the table below.

Further discussion of the notes follows.

As of December 31, 2022

Interest Rate Information

Interest Rate

$ 10,000  

833,334  

8.0% interest (1)

0.59% interest (2)

Total debt, gross

Fair value (E)

898,165  

10.0% interest (3)

12.5% interest (4)

Total debt, gross

20,641  

1,731,499  

Debt discount

( 3,069 )  

Total debt, net

$ 17,572  

Less current maturities

( 4,499 )  

Long term debt

of December 31, 2020

Rate Information

0.0% interest

10.0% interest

3.5% interest

$ 13,073  

As of December 31, 2021

Interest Rate

$ 4,767  

196,079  

8.0% interest (5)

1 unchanged sentence

Total debt, gross

Fair value (E)

196,079  

( 166 )  

Total debt, gross

Debt discount

( 144 )  

Total debt, net

$ 6,875  

Less current maturities

Long term debt

– Secured Disbursed Escrow Promissory Note with related party

– Secured Revolving Promissory Note with related party

$ 6,875  

Acquisition Term Loan with related party

Secured Promissory Note

Consolidation Term Loan with related party

Term Loan ( 2022 ) with related party

– Amended and Restated Seller Note from acquisition of Allure

– Secured Convertible Special Loan Promissory Note, at fair value

– Paycheck Protection Program Loan from Small Business Administration

(1) 8.0% cash interest per annum through March 31, 2020.

10.0% paid-in-kind interest (“PIK”) interest per annum from April 1, 2020 through December 31, 2020.

8.0% cash interest per annum January 1, 2021 through the maturity date.

(2) 8.0% cash interest per annum, comprised of 6.0% cash, 2.0% PIK through March 31, 2020.

10.0% PIK interest per annum through September 30, 2020.

In an event of default, the interest rate increases by 6.0% to 16.0%.

Debt is automatically convertible to a new class of senior preferred stock of the Company at the earlier of an event of default or November 30, 2020.

The principal, including PIK interest, as of December 31, 2020 is $2,177;

however, fair value accounting for the convertible debt instrument results in an additional $93 of debt recorded on the Consolidated Balance Sheet as of December 31, 2020 related to this instrument.

(3) 1,0% cash interest per annum.

Payments are deferred for six months from the date of the Promissory Note and the Company can apply for forgiveness of the Promissory Note after 60 days.

Amended and Restated Loan and Security Agreement

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”).

Senior Secured Term Loan with related party

Secured Convertible Special Loan Promissory Note, at fair value, with related party

8.0 % cash interest per annum through maturity at February 15, 2025

0.59 % cash interest per annum (the applicable federal rate) through February 17, 2023. 

Annual interest rate on the outstanding principal increased from 0.59 % to 4.60 % per annum through maturity at February 17, 2024.

10.0 % cash interest per annum through maturity date at February 15, 2025.

12.5 % cash interest per annum through maturity at September 1, 2023.

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

Secured Promissory Note

On February 17, 2022, in connection with the closing of the Merger, the Company issued to RSI Exit Corporation (“Stockholders’

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

The Secured Promissory Note 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.

On February 11, 2023, the Company and the Stockholders’

Representative executed an amendment (the “Note Amendment”) to the Secured Promissory Note. The Note Amendment eliminates the balloon payment, extending the maturity date for a one -year period, to February 17, 2024.

During the extended period, the Company will continue to make monthly principal payments of $ 104 , and the annual interest rate on the outstanding principal increased from 0.59 % to 4.60 %, which will accrue and is payable in full on the new maturity date.

Second Amended and Restated Loan and Security Agreement

On February 17, 2022, 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.

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 provides that the

Company’s outstanding loans from Slipstream at December 31, 2021, consisting of its pre-existing $4,767 senior secured term

loan and $2,418 secured convertible loan, with an aggregate of $7,185 in outstanding principal and accrued and unpaid interest under

such loans, were consolidated into a term loan (the “Consolidation Term Loan”).

The Consolidation Term Loan has an

interest rate of 10.0%, with 75.0% warrant coverage (or 2,694,495 warrants).

The Company issued to Slipstream a $7,185 Consolidation

Term Note in connection with consolidating the Consolidation Term Loan.

On the first day of each month, commencing March 1, 2022

through February 1, 2025, the Borrowers will make interest-only payments on the Consolidation Term Loan (estimated to be $60 per

monthly payment).

Commencing on September 1, 2023, and on the first day of each month thereafter until the Maturity Date, the

Borrowers will make a payment on the Consolidation Term Loan, in an equal monthly installment of principal sufficient to fully

amortize the Consolidation Term Loan in eighteen equal installments (estimated to be $399 per monthly installment).

In addition to refinancing the existing debt with

Slipstream, the Company also raised $ 10,000 in gross proceeds, or $ 9,950 in net proceeds, from entry into a new, 36-month senior secured

term loan (the “Acquisition Loan”) with Slipstream as part of the Credit Agreement, which matures on February 17, 2025 (the

“Maturity Date”).

The Acquisition Loan has an interest rate of 8.0 %, with 50.0 % warrant coverage (or 2,500,000 warrants).

The Company issued to Slipstream a $ 10,000 Acquisition Term Note in connection with obtaining the Acquisition Loan.

On the first day of

each month, commencing March 1, 2022 through February 1, 2025, the Borrowers will make interest-only payments on the Acquisition Loan

(estimated to be $67 per monthly payment).

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

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.

certain circumstances, upon a fundamental transaction of the Company (e.g., a disposal or sale of all or the greater part of the assets

or undertaking of the Company, an amalgamation or merger with another company, or implementation of a scheme of arrangement), the holder

of the Lender Warrant will have the right to require the Company to repurchase the Lender Warrant at its fair value using a Black Scholes

option pricing formula;

provided that such holder may not require the Company or its successor entity to repurchase the Lender Warrant

for the Black Scholes value in connection with a fundamental transaction that is not approved by the Company’s Board of Directors,

and therefore not within the Company’s control.

Promissory Note

February 17, 2022, in connection with the closing of the Reflect Acquisition, the Company issued to RSI Exit Corporation (“Stockholders’

Representative”), the representative of Reflect stockholders, a $ 2,500 Note and Security Agreement (the “Secured Promissory

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 17, 2022.

Any remaining or unpaid principal

shall be due and payable on February 15, 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.

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.

and Restated Loan and Security Agreement

March 7, 2021, the Company and its subsidiaries (collectively, the “Borrowers”) refinanced their current debt facilities

with Slipstream pursuant to an Amended and Restated Credit and Security Agreement (the “Prior Credit Agreement”).

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

The maturity date (“Maturity Date”) on the outstanding

debt and new debt is extended to March 31, 2023 .

The Prior Credit Agreement (i) provides a $1,000 of availability under a line of credit

(the “Line of Credit”), (ii) consolidates our existing term and revolving line of credit facilities into a new term loan

(the “New Term Loan”) having an aggregate principal balance of approximately $4,550 (including a 3.0% issuance fee capitalized

into the principal balance), (iii) increases the outstanding special convertible term loan (the “Convertible Loan”) to approximately

$2,280 (including a 3.0% issuance fee capitalized into the principal balance), and (iv) extinguishes the outstanding obligations owed

with respect to a $264 existing disbursed escrow loan in exchange for shares of the Company’s common stock (the “Disbursed

Escrow Conversion Shares”), valued at $2.718 per share (the trailing 10-day VWAP as reported on the Nasdaq Capital Market as of

the date of execution of the Prior Credit Agreement).

The Line of Credit and Convertible Loan accrue interest at 10% per year, and the

New Term Loan accrues interest at 8% per year.

New Term Loan requires no principal payments until the Maturity Date, and interest payments are payable on the first day of each month

until the Maturity Date.

All interest payments owed prior to October 1, 2021 are payable as PIK payments, or increases to the principal

balance only.

Line of Credit and Convertible Loan require payments of accrued interest payable on the first day of each month through April 1, 2022.

All such interest payments made prior to October 1, 2021 are payable as PIK payments, or increases to the principal balances under the

Line of Credit and Convertible Loan only.

No principal payments are owed under the Line of Credit or Convertible Loan until April 1,

2022, at which time all principal and interest on each of the Line of Credit and Convertible Loan will be paid in monthly installments

until the Maturity Date to fully amortize outstanding principal by the Maturity Date.

payments of interest (other than PIK payments) and principal on the Line of Credit and Convertible Loan may be paid, in the Borrowers’

sole discretion, in shares of the Company’s Common Stock (the “Payment Shares,” and together with the Disbursed Escrow

Conversion Shares, the “Shares”).

The Payment Shares will be valued on a per-Share basis at 70 % of the VWAP of the Company’s

shares of common stock as reported on the Nasdaq Capital Market for the 10 trading days immediately prior to the date such payment is

provided that the Payment Shares shall not be valued below $ 0.50 per Share (the “Share Price”).

Prior Credit Agreement limits the Company’s ability to issue Shares as follows (the “Exchange Limitations”):

total number of Shares that may be issued under the Prior Credit Agreement will be limited to 19.99% of the Company’s outstanding

shares of common stock on the date the Prior Credit Agreement is signed (the “Exchange Cap”), unless stockholder approval

is obtained to issue shares in excess of the Exchange Cap;

(2) if Slipstream and its affiliates (the “Slipstream Group”)

beneficially own the largest ownership position of shares of Company common stock immediately prior to the proposed issuance of Payment

Shares and such shares are less than 19.99% of the then-issued and outstanding shares of Company common stock, the issuance of such Payment

Shares will not cause the Slipstream Group to beneficially own in excess of 19.99% of the issued and outstanding shares of Company common

stock after such issuance unless stockholder approval is obtained for ownership in excess of 19.99%;

and (3) if the Slipstream Group

does not beneficially own the largest ownership position of shares of Company common stock immediately prior to the proposed issuance

of Payment Shares, the Company may not issue Payment Shares to the extent that such issuance would result in Slipstream Group beneficially

owning more than 19.99% of the then issued and outstanding shares of Company common stock unless (A) such ownership would not be the

largest ownership position in the Company, or (B) stockholder approval is obtained for ownership in excess of 19.99%.

Accounting for the Prior Credit Agreement was accounted

for as a debt extinguishment in the first quarter of 2021.

and Security Agreement History

August 17, 2016, the Company entered into a Loan and Security Agreement with Slipstream (“Loan and Security Agreement”).

Since the initial entry into the Loan and Security Agreement in 2016, the Company has entered into several financing arrangements with

varying interest rates, maturity dates, and number of associated detachable warrants, each entered within the structure of the Loan and

Security Agreement.

The debt instruments outstanding under the Loan and Security Agreement as of December 31, 2020 include the Term Loan,

Secured Revolving Promissory Note, Secured Disbursed Escrow Promissory Note, and the Special Loan.

Loan and Security Agreement contains certain customary restrictions including, but not limited to, restrictions on mergers and consolidations

with other entities, cancellation of any debt or incurring new debt (subject to certain exceptions), and other customary restrictions.

Obligations under the loan and security agreement are secured by a grant of collateral security in all of the tangible assets of Creative

Realities, Inc.

and each of its wholly owned subsidiaries.

Tenth, Eleventh, Twelfth, and Thirteenth Amendment;

Modification of Conversion Date of Special Loan under Loan and Security Agreement

February 28, 2021, January 31, 2021, December 31, 2020, November 30, 2020, and September 29, 2020, the Company entered into several amendments

to Loan and Security Agreement with its subsidiaries and Slipstream to amend the automatic conversion date of the Special Loan.

amendment extended the automatic conversion date of the Special Loan, which was ultimately Amended and Restated in full on March 7, 2021

as discussed further above.

The Company paid no fees in exchange for these extensions.

Modification of Interest Rates under Loan and Security Agreement

April 1, 2020, the Company entered into an Eighth Amendment to Loan and Security Agreement (the “Eighth Amendment”) with

its subsidiaries and Slipstream to amend the terms of the payments and interest accruing on the Company’s Term Loan, Secured Revolving

Promissory Note, and Special Loan.

The Eighth Amendment increased the interest rates of these loans from 8 % to 10 %, effective April 1,

Until January 1, 2021, rather than cash payments of accrued interest under the term and revolving loans, interest will be paid

by the issuance of and treated as additional principal thereunder.

Commencing January 2, 2021, such interest will be payable in cash.

Interest on the special loan will no longer be paid in cash, but by the issuance of and treated as additional principal thereunder.

entry into the Eighth Amendment, the Company completed an analysis of the changes in the Loan and Security Agreement within ASC 470 Debt ,

concluding that the changes represent a modification to the existing debt that was not a troubled debt restructuring and will account

for the modified terms prospectively as yield adjustments, based on the revised terms.

Disbursed Escrow Promissory Note

Fourth Amendment to the Loan and Security Agreement included entry into a Secured Disbursed Escrow Promissory Note between the Company

and Slipstream, and, effective June 30, 2018, we drew $ 264 in conjunction with our exit from a previously leased operating facility.

(“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 provides that the Company’s outstanding loans from Slipstream at December 31, 2021, consisting of its pre-existing $ 4,767 senior secured term loan and $ 2,418 secured convertible loan, with an aggregate of $ 7,185 in outstanding principal and accrued and unpaid interest under such loans, were consolidated into a term loan (the “Consolidation Term Loan”).

The Consolidation Term Loan has an interest rate of 10.0 %, with 75.0 % warrant coverage (or 898,165 warrants).

On the first day of each month, commencing March 1, 2022 through February 1, 2025, the Borrowers will make interest-only payments on the Consolidation Term Loan.

Commencing on September 1, 2023, and on the first day of each month thereafter until the Maturity Date, the Borrowers will make a payment on the Consolidation Term Loan, in an equal monthly installment of principal sufficient to fully amortize the Consolidation Term Loan in eighteen equal installments.

The Company assessed the combination of the pre-existing senior secured term loan and secured convertible loan in accordance with ASC 470 Debt and determined the transaction should be accounted for as an extinguishment, in part as the Consolidation Term Loan eliminated a substantive conversion feature.

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

In addition to refinancing the existing debt with Slipstream, the Company issued to Slipstream a $ 10,000 , 36 -month senior secured term loan (the “Acquisition Term Loan”) resulting in $ 10,000 in gross proceeds, or $ 9,950 in net proceeds.

The Acquisition Term Loan matures on February 17, 2025 ( the “Maturity Date”) and has an interest rate of 8.0 %, with 50.0 % warrant coverage (or 833,334 warrants).

On the first day of each month, commencing March 1, 2022 through February 1, 2025, the Borrowers will make interest-only payments on the Acquisition Term Loan.

No principal payments on the Acquisition Term Loan are payable until the Maturity Date.

In connection with the Acquisition Term Loan and Consolidation Term Loan warrant coverage, the Company issued to Slipstream a warrant to purchase an aggregate of 1,731,499 shares of Company common stock (the “Lender Warrant”).

The Lender Warrant has a five -year term, an initial exercise price of $ 6.00 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 $ 2.4387 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 $ 1,267  during the year ended December 31, 2022.

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

In certain circumstances, upon a fundamental transaction of the Company (e.g., a disposal or sale of all or the greater part of the assets or undertaking of the Company, an amalgamation or merger with another company, or implementation of a scheme of arrangement), the holder of the Lender Warrant will have the right to require the Company to repurchase the Lender Warrant at its fair value using a Black Scholes option pricing formula;

provided that such holder may not require the Company or its successor entity to repurchase the Lender Warrant for the Black Scholes value in connection with a fundamental transaction that is not approved by the Company’s Board of Directors, and therefore not within the Company’s control.

Effective June 30, 2022, the Company amended the terms of the Lender Warrant to remove the holder’s option to exercise such warrant 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 remove the condition to exercising such warrant that the Company’s shareholders approve the exercise thereof (which has already been obtained).

The amendments to the Lender Warrant also extend the term of such warrants for an additional one year, such that the Lender Warrant will expire on February 17, 2028.

The foregoing amendments to the Lender Warrant caused such warrants to be accounted for as equity instruments in the Company’s Consolidated Financial Statements.

On October 31, 2022, the Borrowers and Slipstream amended the Credit Agreement to provide the Borrowers with a $ 2,000 term loan ("Term Loan ( 2022 )"), 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.

Loan and Security Agreement History

Prior to the execution of the Credit Agreement, Borrower and Slipstream were parties to a Loan and Security Agreement.

On March 7, 2021, On February 28, 2021, January 31, 2021, December 31, 2020, November 30, 2020, and September 29, 2020, the parties entered into several amendments to the Loan and Security Agreement to amend the automatic conversion date of the Special Loan and, later, to eliminate the conversion feature.

Each amendment extended the automatic conversion date of the Special Loan.

The Company paid no fees in exchange for these extensions, with the exception of the March 7, 2021 extension which resulted in the Company recording of $ 133 of incremental debt discount, a net gain of $ 26 via the extinguishment of the Special Loan, and expense of $ 69 of costs incurred with third parties as a result of extinguishment of the Special Loan, modification of the New Term Loan, and extinguishment of the Disbursed Escrow Loan.

Secured Disbursed Escrow Promissory Note

The Fourth Amendment to the Loan and Security Agreement included entry into a Secured Disbursed Escrow Promissory Note between the Company and Slipstream, and, effective June 30, 2018, we drew $ 264 in conjunction with our exit from a previously leased operating facility.

The principal amount of the Secured Disbursed Escrow Promissory Note bears no interest.

Upon entry into the Prior Credit 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 Shareholder’s Equity.

Paycheck Protection Program Loan

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 year-ended December 31, 2021.

and Restated Seller Note from acquisition of Allure

Amended and Restated Seller Note represented a note payable due from Allure to Seller, under a pre-existing Seller Note which was amended

and restated to a reduced amount of $1,637 through the Stock Purchase Agreement and a subsequent net working capital adjustment.

debt accrued interest at 3.5% per annum, and required us to make quarterly payments of interest only through February 19, 2020, on which

date the promissory note matured and all remaining amounts owing thereunder became due.

February 20, 2020, Creative Realities, Inc.

and Allure made a demand for arbitration against Seller for (1) breach of contract, (2) indemnification,

and (3) fraudulent misrepresentation under the Allure Purchase Agreement.

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.

a result of this settlement, the full principal amount of the Seller Note and the accrued interest were 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 2021.

Upon entry into the Prior Credit Agreement on March 7, 2021, this note was converted into Disbursed Escrow Conversion Shares, with elimination of the debt recorded as an equity issuance within the Statements of Shareholders' Equity.

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 rate.

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 year-ended December 31, 2021.

Amended and Restated Seller Note from acquisition of Allure

The Amended and Restated Seller Note represented a note payable due from Allure to Seller, under a pre-existing Seller Note which was amended and restated to a reduced amount of $ 1,637 through the Stock Purchase Agreement and a subsequent net working capital adjustment.

That debt accrued interest at 3.5 % per annum, and required us to make quarterly payments of interest only through February 19, 2020, on which date the promissory note matured and all remaining amounts owing thereunder became due.

On February 20, 2020, Creative Realities, Inc.

and Allure made a demand for arbitration against Seller for ( 1 ) breach of contract, ( 2 ) indemnification, and ( 3 ) fraudulent misrepresentation under the Allure Purchase Agreement.

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 Seller Note and the accrued interest were eliminated, resulting in a gain in the Consolidated Financial Statements of $ 1,624 , representing $ 1,538 related to the Seller Note and $ 86 of related interest thereon, during 2021.

COMMITMENTS AND CONTINGENCIES

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.

On October 10, 2019, the Allure customer that is

the basis of our claim above sent a demand to the Company for payment of $ 3,200 as settlement for an alleged breach of contract related

to hardware failures of equipment installations performed by Allure between November 2017 and August 2018.

The suits filed by and against

Allure have been adjoined in the Jefferson Circuit Court, Kentucky in January 2020.

Due to delays arising as a result of the ongoing COVID-19

pandemic, these suits remain in the early stages of litigation and, as a result, the outcome of the suits and the allocation of liability,

if any, remain unclear, so the Company is unable to reasonably estimate the possible liability, recovery, or range of magnitude for either

the liability or recover, if any, at the time of this filing.

Company has notified its insurance company of potential claims and continues to evaluate both the claim made by the customer and potential

avenues for recovery against third parties should the customer prevail.

February 20, 2020, Creative Realities, Inc.

and Allure made a demand for arbitration against Seller for (1) breach of contract, (2) indemnification,

and (3) fraudulent misrepresentation under the Allure Purchase Agreement.

This demand included a claim for the right to offset the amounts

owing under the Amended and Restated Seller Note due February 20, 2020.

The Company did not pay the Amended and Restated Seller Note

on its maturity date.

On February 27, 2020, Seller sent the Company a notice of breach for failure to pay the Amended and Restated Seller

Note on the maturity date of February 20, 2020 and demanding immediate payment.

On September 11, 2020, the Company served a First Amended

Demand in the arbitration with Seller, and on November 5, 2020, Seller pre-served a Motion for Summary Disposition in the arbitration

demanding payment of the Amended and Restated Seller Note and accrued interest.

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.

The Company recorded a gain on settlement of obligations of $ 1,624 during

2021 upon settlement.

Except as noted above, the Company is not party

to any other material legal proceedings, other than ordinary routine litigation incidental to the business, and there were no other such

proceedings pending during the period covered by this Annual Report.

of obligations

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 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, 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 .

the year ended December 31, 2020, the Company settled and/or wrote off obligations of $ 348 for aggregate cash payments of $ 139 and recognized

a gain of $ 209 related to legacy accounts payable deemed to no longer be legal obligations to vendors.

Employee-related

implemented cost-control measures in light of the effect of the COVID-19 pandemic on our business, including employment compensation

reductions designed to achieve preliminary cost savings.

On March 19, 2020, the Company’s Board of Directors approved a six-month

reduction of the salaries of several Company employees by between five percent (5%) and twenty percent (20%).

During 2021, the Company

reinstated lost salaries one-third on each of April 1, July 1, and October 1, the final reinstate thereby increasing the compensation

to its pre-pandemic levels.

March 20, 2020, we completed a reduction-in-force and accrued one-time termination benefits related to severance to the affected employees

of $ 135 , the total of which was paid during 2020.

December 31, 2020, we vacated our office facilities located in Dallas, TX.

In ceasing use of these facilities, we recorded a one-time

non-cash charge of $ 18 .

There were no such lease terminations during 2021.

RELATED PARTY TRANSACTIONS

addition to the financing transactions with Slipstream, a related party, discussed in Note 8 Loans Payable , we have the following

related party transactions.

Degrees Convenience Connect, Inc., a related party that was approximately 17.5 % owned by a member of our senior management (“33

Degrees”) until September 2021, is a customer of both equipment and services from the Company.

For the years ended December 31,

2021 and 2020, we had sales of $457 (2.5% of consolidated sales) and $1,057 (6.1% of consolidated sales), respectively, with 33 Degrees.

Accounts receivable due from 33 Degrees was $ 35 , or 1.0 %, and $ 40 , or 1.2 % of consolidated accounts receivable at December 31, 2021 and

December 31, 2020, respectively.

tax benefit/(expense) consisted of the following:

On August 2, 2019, the 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. On October 10, 2019, the Allure customer that is the basis of our claim above sent a demand to the Company for payment of $ 3,200 as settlement for an alleged breach of contract related to hardware failures of equipment installations performed by Allure between November 2017 and August 2018.

On March 10, 2023, the Company, the supplier and the Allure customer reached a Settlement Agreement and Release of Claims ("Settlement Agreement").

Pursuant to the Settlement Agreement, the Company is obligated to pay $733;

however, its insurer has agreed to pay $ 700 of that amount. 

Thus, the Company is obligated to pay $ 33 of the settlement amount.

On February 20, 2020, Creative Realities, Inc.

and Allure made a demand for arbitration against Seller for ( 1 ) breach of contract, ( 2 ) indemnification, and ( 3 ) fraudulent misrepresentation under the Allure Purchase Agreement.

This demand included a claim for the right to offset the amounts owing under the Amended and Restated Seller Note due February 20, 2020.

The Company did not pay the Amended and Restated Seller Note on its maturity date.

On February 27, 2020, Seller sent the Company a notice of breach for failure to pay the Amended and Restated Seller Note on the maturity date of February 20, 2020 and demanding immediate payment.

On September 11, 2020, the Company served a First Amended Demand in the arbitration with Seller, and on November 5, 2020, Seller pre-served a Motion for Summary Disposition in the arbitration demanding payment of the Amended and Restated Seller Note and accrued interest.

The Company recorded a gain on settlement of obligations of $ 1,624 during 2021 upon settlement.

Except as noted above, the Company is not party to any other material legal proceedings, other than ordinary routine litigation incidental to the business, and there were no other such proceedings pending during the period covered by this Annual Report.

Settlement of obligations

There were no individually material settlements during the year-ended December 31, 2022.

During 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 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, 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 . During the year ended December 31, 2021 , the Company settled and/or wrote off obligations of $ 348 for aggregate cash payments of $ 139 and recognized a gain of $ 209 related to legacy accounts payable deemed to no longer be legal obligations to vendors.

BUSINESS COMBINATION

On November 12, 2021, the Company and Reflect Systems, Inc., or “Reflect,”

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

and February 11, 2023, 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 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 solutions, including software, strategic and media services to a wide range of companies across the retail, financial, hospitality and entertainment, healthcare, and employee communications industries in North America.

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

Through its strategic services, Reflect assists its customers with designing, deploying and optimizing their digital signage networks, and through its media services, Reflect assists customers with monetizing their digital advertising networks.

Subject to the terms and conditions of the Merger Agreement, upon the closing of the Merger, Reflect stockholders as of the effective time of the Merger collectively received from the Company, in the aggregate, the following Merger consideration:

(i) $ 16,166 in cash, (ii) 777,778 shares of common stock of Creative Realities (valued based on an issuance price of $ 6 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 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 $ 19.20 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 $ 21.60 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). 

At or before December 31, 2022, the condition of certain customers of Reflect collectively to achieve over 85,000 billable devices online was not met. 

Accordingly, the contingent cash payment amount was reduced at December 31, 2022 from $ 21.60 per share to $ 19.20 per share, a reduction of $ 2.40 per share.   

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 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 $ 3.00 per share.

In connection with the Merger, the Company adopted a Retention Bonus Plan and raised capital to, among other things, pay the cash portion of the Merger consideration. The Retention Bonus Plan is described below.

Retention Bonus Plan

On February 

17, 2022, 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 $ 1,334 in cash, which was paid 50 % at 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 $ 6.00 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 participant under the Retention Bonus Plan.

Any amounts unpaid by reason of a lapse in continuous employment or otherwise will be reallocated among the remaining Retention Bonus Plan participants.

Purchase price 

The preliminary purchase price of Reflect consisted of the following items:

(in thousands)

Consideration

Cash consideration for Reflect stock (1)

$ 16,664  

Cash consideration for Retention Bonus Plan (2)

Common stock issued to Reflect shareholders (3)

Common stock issued to Retention Bonus Plan (4)

Secured Promissory Note (5)

Earnout liability (6)

10,862  

Total consideration

36,360  

Vendor deposit with the Company (7)

Cash acquired (8)

Net consideration transferred

$ 34,730  

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

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

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

( 4 ) 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 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 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 $ 19.20 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 $ 21.60 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.

At 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.

( 8 ) Represents the Reflect cash balance acquired at Closing.

The Company incurred $ 444 of direct transaction costs related to the Reflect Merger for the year ended December 31, 2022.

These costs are included in deal and transaction expense in the accompanying Consolidated Statements of Operations.

The Company accounted for the Merger using the acquisition method of accounting.

The preliminary allocation of the purchase price is based on estimates of the fair value of assets acquired and liabilities assumed as of February 17, 2022.

The Company is continuing to obtain information to determine the acquired assets and liabilities, including tax assets, liabilities and other attributes.

The components of the preliminary purchase price allocation, inclusive of measurement period adjustments recorded by the Company during the year ended December 31, 2022, are as follows:

(in thousands)

Accounts receivable

$ 1,359  

Prepaid expenses & other current assets

Property and equipment

Operating right of use assets

Identified intangible assets:

Definite-lived trade names

Definite-lived developed technology

Definite-lived customer relationships

11,040  

Definite-lived noncompete agreements

18,935  

Accounts payable

Accrued expenses

Customer deposits

Deferred revenues

Current maturities of operating leases

Long-term obligations under operating leases

Other liabilities

Net consideration transferred

$ 34,730  

The Company engaged a third -party valuation specialist to assist in the identification and calculation of the fair value of those separately identifiable intangible assets.

The Company completed its valuation procedures by asset utilizing the following approaches:

( 1 ) 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.

( 2 ) 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.

( 3 ) 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 the identifiable intangible assets on a straight-line basis over the weighted average lives ranging from 2 to 10 years as outlined in the table below. 

The table below sets forth the valuation and amortization period of identifiable intangible assets:

(in thousands)

Identifiable definite-lived intangible assets:

Developed technology

Customer relationships

11,040  

$ 17,160  

The Company estimated the preliminary fair value of the acquired property, plant and equipment using a combination of the cost and market approaches, depending on the component.

The preliminary fair value of such property, plant and equipment is $ 96 .

The excess of the purchase price over the preliminary estimated fair value of the tangible net assets and identifiable intangible assets acquired was recorded as goodwill and is subject to change upon final valuation.

The factors contributing to the recognition of the amount of goodwill are based on several strategic and synergistic benefits that are expected to be realized from the Merger.

These benefits include a comprehensive portfolio of iconic customer brands, complementary product offerings, enhanced national footprint, and attractive synergy opportunities and value creation.

None of the goodwill is expected to be deductible for income tax purposes.

The following unaudited pro forma information presents the combined financial results for the Company and Reflect as if the Merger had been completed at the beginning of the Company’s prior year, January 1, 2021.

(in thousands, except earnings per common share)

$ 30,680  

Earnings per common share

$ 0.06  

The information above does not include the pro forma adjustments that would be required under Regulation S- X for pro forma financial information and does not reflect future events that may occur after December 31, 2021 or any operating efficiencies or inefficiencies that may result from the Merger and related financings.

Therefore, the information is not necessarily indicative of results that would have been achieved had the businesses been combined during the periods presented or the results that the Company will experience going forward.

We have not included disaggregated information for Reflect on a standalone basis in the current year for either revenue or net income as the integration activities undertaken by the Company have prevented this information from being useful to financial statement readers.

Reflect Systems, Inc.

(in thousands)

$ 12,243  

Net (loss) income

Income tax expense consisted of the following:

Year ended December 31,

1 unchanged sentence

State income tax

Deferred tax benefit/(expense) - federal

Deferred tax benefit/(expense) – state

Tax benefit/(expense)

income tax benefit includes federal and state income taxes currently payable and those deferred or prepaid because of temporary differences

between financial statement and tax bases of assets and liabilities.

$ ( 51 )  

Deferred tax expense - federal

( 30 )  

Deferred tax benefit –

$ ( 79 )  

The income tax expense includes federal and state income taxes currently payable and those deferred or prepaid because of temporary differences between financial statement and tax bases of assets and liabilities.

The Company records income taxes under the liability method.

this method, deferred income taxes are recognized for the estimated future tax effects of differences between the tax bases of assets

and liabilities and their financial reporting amounts based on enacted tax laws.

reconciliation of the statutory income tax rate to the effective income tax rates as a percentage of income before income taxes is as

Under this method, deferred income taxes are recognized for the estimated future tax effects of differences between the tax bases of assets and liabilities and their financial reporting amounts based on enacted tax laws.

A reconciliation of the statutory income tax rate to the effective income tax rates as a percentage of income before income taxes is as follows:

Federal statutory rate

21.00 %  

State taxes, net of federal benefit

( 2.02 )%  

Foreign rate differential

( 2.51 )%  

PPP Loan Forgiveness

Fair value of Warrant Liability/Contingent Consideration

( 79.66 )%  

Discrete items, Transaction items, and Other

( 2.37 )%  

Changes in valuation allowance

69.60 %  

Effective tax rate

net deferred tax assets and liabilities recognized in the accompanying Consolidated Balance Sheets, determined using the income tax rate

applicable to each period, consist of the following:

4.04 %  

The net deferred tax assets and liabilities recognized in the accompanying Consolidated Balance Sheets, determined using the income tax rate applicable to each period, consist of the following:

Deferred tax assets (liabilities):

2 unchanged sentences

Right-of-use Asset

( 253 )  

Right-of-use Liability

IRC 163(j) Interest Deduction

Debt issuance costs

Non-qualified stock options

IRC Section 174

Net foreign carryforwards

US net operating loss and credit carryforwards

Total deferred tax assets, net

37,953  

35,448  

( 3,737 )  

Total deferred tax liabilities, net

43,391  

42,186  

Valuation allowance

Net deferred tax assets

of December 31, 2021, the Company had no reserves recorded as a liability for unrecognized tax benefits for U.S.

federal and state tax

jurisdictions.

( 43,419 )  

Net deferred tax liabilities

$ ( 28 )  

As of December 31, 2022 , the Company had no reserves recorded as a liability for unrecognized tax benefits for U.S.

federal and state tax jurisdictions.

There were no unrecognized tax benefits as of December 31, 2022 that, if recognized, would affect the tax rate.

is the Company’s policy to accrue interest and penalties related to liabilities for income tax contingencies in the provision for

income taxes.

 It is the Company’s policy to accrue interest and penalties related to liabilities for income tax contingencies in the provision for income taxes.

As of December 31, 2022 , the Company had no accrued interest or penalties related to uncertain tax positions.

deferred tax assets are primarily related to net federal and state operating loss carryforwards (NOLs).

As of December 31, 2021, the

Company has federal and state net operating loss carryforwards expiring between 2022 and 2037, $10,651 of which has an indefinite carryforward

The federal statute of limitations remains open for tax years 2018 through 2020 and state tax jurisdictions generally have statutes

of limitations open for tax years 2017 through 2020.

have substantial NOLs that are limited in usage by IRC Section 382.

IRC Section 382 generally imposes an annual limitation on the amount

of NOLs that may be used to offset taxable income when a corporation has undergone significant changes in stock ownership within a statutory

testing period.

goodwill impairment recorded March 31, 2020 altered the deferred tax impact associated with indefinite lived goodwill from a deferred

tax liability to a deferred tax asset.

As the indefinite-lived intangibles can no longer provide a source of income, a full valuation

allowance was placed against the deferred tax assets.

have performed a preliminary analysis of the annual NOL carryforwards and limitations that are available to be used against taxable income.

Based on the history of losses of the Company, there continues to be a full valuation allowance against the net deferred tax assets of

summary of outstanding warrants for the years ended December 31, 2021 and 2020 is included below:

Our deferred tax assets are primarily related to net federal and state operating loss carryforwards (NOLs).

As of December 31, 2022 , the Company has federal and state net operating loss carryforwards expiring between 2023 and 2037, $ 10,651 of which has an indefinite carryforward period.

The federal statute of limitations remains open for tax years 2019  through 2021 and state tax jurisdictions generally have statutes of limitations open for tax years 2018 through 2021.

We have substantial NOLs that are limited in usage by IRC Section 382.

IRC Section 382 generally imposes an annual limitation on the amount of NOLs that may be used to offset taxable income when a corporation has undergone significant changes in stock ownership within a statutory testing period.

We have performed a preliminary analysis of the annual NOL carryforwards and limitations that are available to be used against taxable income.

Based on the history of losses of the Company, there continues to be a full valuation allowance against the net deferred tax assets of the Company.

A summary of outstanding warrants for the years ended 

December 31, 2022 and 2021 is included below:

Year Ended December 31, 2022

Warrants (Equity)

Weighted Average Exercise Price

Weighted Average Remaining Contractual Life

Average Exercise

Contractual Life

Balance January 1, 2022

1,367,737  

$ 13.44  

Warrants issued

1,950,502  

Warrants exercised

( 1,950,502 )  

Warrants expired

( 130,712 )  

Warrants reclassified

4,587,002  

Balance December 31, 2022

5,824,027  

$ 6.56  

Year Ended December 31, 2022

Warrants (Liability)

Average Exercise

Contractual Life

Balance January 1, 2022

Warrants issued

4,587,002  

Warrants reclassified

( 4,587,002 )  

( 4.90 )  

Balance December 31, 2022

Year Ended December 31, 2021

Warrants (Equity)

Weighted Average Exercise Price

Weighted Average Remaining Contractual Life

Average Exercise

Contractual Life

Balance January 1, 2021

1,475,633  

$ 13.86  

Warrants issued

Warrants exercised

Warrants expired

( 107,896 )  

Balance December 31, 2021

of December 31, 2021, there remained outstanding 597,678 warrants which contain weighted average anti-dilution protection.

those warrants were subject to a downward adjustment in their strike price following completion of the Company’s issuance of common

stock in (1) the Registered Direct Offering in February 2021 and (2) the conversion of the Disbursed Escrow Note in March 2021.

prices prior to adjustment ranged from $ 5.80 to $ 5.96 and were adjusted to between $ 5.61 and $ 5.76 .

The remaining weighted-average contractual

life of warrants subject to weighted average anti-dilution protection is 0.92 years as of December 31, 2021.

of December 31, 2020, there remained outstanding 921,367 warrants which contain weighted average anti-dilution protection.

those warrants were subject to a downward adjustment in their strike price following completion of the Company’s issuance of common

stock via at-the-market offering activities.

The strike prices prior to adjustment ranged from $ 6.09 to $ 6.25 and were adjusted to between

$ 5.80 and $ 5.96 .

The remaining weighted-average contractual life of warrants subject to weighted average anti-dilution protection is

1.71 years as of December 31, 2020.

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.

On February 3, 2022, the Company, entered into a securities purchase

agreement (the “Securities Purchase Agreement”) with a purchaser (the “Purchaser”), pursuant to which the Company

agreed to issue and sell to the Purchaser, in a private placement priced at-the-market under Nasdaq rules, (i) 1,315,000 shares (the “Shares”)

of the Company’s common stock, par value $0.01 per share (the “Common Stock”) and accompanying warrants to purchase

an aggregate of 1,315,000 shares of Common Stock, and (ii) pre-funded warrants to purchase up to an aggregate of 5,851,505 shares of Common

Stock (the “Pre-Funded Warrants”) and accompanying warrants to purchase an aggregate of 5,851,505 shares of Common Stock (collectively,

the “Private Placement”).

The accompanying warrants to purchase Common Stock are referred to herein collectively as the “Common

Stock Warrants.” Under the Securities Purchase Agreement, each Share and accompanying warrants to purchase Common Stock were sold

together at a combined price of $1.535, and each Pre-Funded Warrant and accompanying warrants to purchase Common Stock were sold together

at a combined price of $1.5349, for gross proceeds of approximately $11,000, before deducting placement agent fees and estimated offering

expenses payable by the Company.

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 $ 2.00 per share which expire five years

from the date of issuance.

1,367,737  

$ 13.44  

On February 3, 2022, the Company entered into a Securities Purchase Agreement with a purchaser (the “Purchaser”), pursuant to which the Company agreed to issue and sell to the Purchaser, in a private placement priced at-the-market under Nasdaq rules, (i) 438,334 shares (the “Shares”) of the Company’s common stock, par value $ 0.01 per share (the “Common Stock”) and accompanying warrants to purchase an aggregate of 438,334 shares of Common Stock, and (ii) pre-funded warrants to purchase up to an aggregate of 1,950,502 shares of Common Stock (the “Pre-Funded Warrants”) and accompanying warrants to purchase an aggregate of 1,950,502 shares of Common Stock (collectively, the “Private Placement”).

The accompanying warrants to purchase Common Stock are referred to herein collectively as the “Common Stock Warrants.”

Under the Securities Purchase Agreement, each Share and accompanying warrants to purchase Common Stock were sold together at a combined price of $ 4.605 , and each Pre-Funded Warrant and accompanying warrants to purchase Common Stock were sold together at a combined price of $ 4.6047 , for gross proceeds of approximately $ 11,000 , before deducting placement agent fees and estimated offering expenses payable by the Company.

In the first quarter of 2022, each of the Pre-Funded Warrants were exercised.

The Common Stock Warrants expire 

five years from the date of issuance.

The Company evaluated the Pre-Funded Warrants and concluded that they met the criteria to be classified within stockholders’

equity, with proceeds recorded as common stock and additional paid-in-capital.

The Company evaluated the Common Stock Warrant and concluded they did not meet the criteria to be classified within stockholders’

The Common Stock Warrant included provisions which could result in a different settlement value for the Common Stock Warrant depending on the registration status of the underlying shares.

Because these conditions were not an input into the pricing of a fixed-for-fixed option on the Company’s ordinary shares, the Common Stock Warrant was not considered to be indexed to the Company’s own stock.

The Company recorded these warrants as liabilities on the Consolidated Balance Sheets at fair value, with subsequent changes in their respective fair values recognized in the Consolidated Statements of Operations at each reporting date.

At the date of issuance, the Company performed a Black-Scholes valuation of the warrants, resulting in a fair value of $ 3.2781 per warrant.

The Company recorded a gain on the fair value of these warrants of $ 4,951 in the Consolidated Statements of Operations for the year ended December 31, 2022, which reflects the change in fair value from granting of the warrants through June 30, 2022, the effective date of the warrant agreement amendment.

On February 17, 2022, in connection with the Credit Agreement with Slipstream, the Company issued to Slipstream 1,731,499 warrants with an exercise price of $ 6.00 per share, which expire five years from the date of issuance (the “Lender Warrant”).

These warrants are not exercisable until 180 days after the issuance date.

The common shares underlying these warrants have not yet been registered for resale under the Securities Act of 1933, which provides Slipstream with an option for cashless exercise once the warrant becomes exercisable until such time as such registration occurs.

The Lender Warrant expired five years from the date of issuance.

The Company evaluated the Lender Warrant and concluded that it did not meet the criteria to be classified within stockholders’

The Lender Warrant included provisions that could result in a different settlement value for the Lender Warrant depending on the registration status of the underlying shares.

Because these conditions were not an input into the pricing of a fixed-for-fixed option on the Company’s ordinary shares, the Lender Warrant was not considered to be indexed to the Company’s own stock.

The Company recorded these warrants as liabilities in the Consolidated Balance Sheets at fair value, with subsequent changes in their respective fair values recognized in the Consolidated Statements of Operations at each reporting date.

At the date of issuance, the Company performed a Black-Scholes valuation of the warrants, resulting in a fair value of $ 2.4387 per warrant.

In recording the warrant liability, the Company recorded an increase in debt discount in the Consolidated Balance Sheets associated with the issuance of the warrants of $ 4,223 , which is being amortized through interest expense in the Consolidated Statements of Operations over the life of the Acquisition Term Loan and Consolidation Term Loan.

The Company recorded a gain on the fair value of these warrants of $ 2,302 in the Consolidated Statements of Operations for the year ended December 31, 2022, which reflects the change in fair value from granting of the warrants through June 30, 2022, the effective date of the warrant agreement amendment.

On 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 466,667 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 $ 0.375 per share.

The exercise price of the Purchaser Warrant is $ 4.23 per share, and the Purchaser Warrant is not exercisable until August 17, 2022.

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

The Company evaluated the Purchaser Warrant and concluded that it did not meet the criteria to be classified within stockholders’

The Purchaser Warrant included provisions which could result in a different settlement value for the Purchaser Warrant depending on the registration status of the underlying shares.

Because these conditions were not an input into the pricing of a fixed-for-fixed option on the Company’s ordinary shares, the Purchaser Warrant was not considered to be indexed to the Company’s own stock.

At the date of issuance, the Company performed a Black-Scholes valuation of the Purchaser Warrant, resulting in a fair value of $ 2.5968 per warrant.

In recording the warrant liability, the Company recorded an expense in the Consolidated Statements of Operations associated with the issuance of the Purchaser Warrant of $ 1,212 .

The Company recorded a gain on the fair value of the Purchaser Warrant of $ 649 in the Consolidated Statements of Operations for the year ended December 31, 2022, which reflects the change in fair value from granting of the warrants through June 30, 2022, the effective date of the warrant agreement amendment.

Effective June 30, 2022, the Company amended the terms of the Common Stock Warrant ( 2,388,836 warrants), Lender Warrant ( 1,731,499 warrants) and Purchaser Warrant ( 466,667 warrants).

The amendments to such warrants removes 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 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 warrants also extend 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 in the Consolidated Statements of Operations for the year ended December 31, 2022.

The foregoing amendments to the warrants resulted in such warrants to be accounted for as equity instruments in the Company’s Consolidated Financial Statements.

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.

These amounts are reflected as additional paid-in-capital in the Consolidated Balance Sheet as of December 31, 2022.

As of December 31, 2022 , there remained outstanding 68,508 warrants which contain weighted average anti-dilution protection.

During 2022, those warrants were subject to a downward adjustment in their strike price following completion of the Company’s issuance of common stock or common stock equivalents in ( 1 ) the Private Placement, ( 2 ) the Credit Agreement, and ( 3 ) the Waiver, each in February 2022.

The strike prices prior to adjustment ranged from $ 16.83 to $ 17.31 and were adjusted to between $ 10.23 and $ 10.44 , resulting in the Company recording an increase in additional paid-in-capital of $ 31 in the Consolidated Statements of Shareholders' Equity for the year ended December 31, 2022. 

The remaining weighted-average exercise price and weighted average contractual life of warrants subject to weighted average anti-dilution protection is $ 10.41 and 0.24 years, respectively, as of December 31, 2022 .

As of December 31, 2021 , there remained outstanding 307,123 warrants which contain weighted average anti-dilution protection.

During 2020, those warrants were subject to a downward adjustment in their strike price following completion of the Company’s issuance of common stock via at-the-market offering activities.

The strike prices prior to adjustment ranged from $ 18.27 to $ 18.75 and were adjusted to between $ 17.40 and $ 17.88 .

The remaining weighted-average contractual life of warrants subject to weighted average anti-dilution protection is 1.71 years as of December 31, 2021 .

STOCK-BASED COMPENSATION

summary of outstanding options as of December 31, 2021 is included below:

A summary of outstanding options as of December 31, 2022 is included below:

Time Vesting Options

3 unchanged sentences

$4.01 - $8.00

566,673  

352,227  

$ 7.47  

96,237  

$ 25.37  

662,910  

$ 10.02  

448,464  

Performance Vesting Options

Range of Exercise

Prices between

$0.01 - $4.00

$4.01 - $8.00

240,000  

$ 7.59  

80,000  

$ 7.59  

240,000  

$ 7.59  

80,000  

Market Vesting Options

Range of Exercise

Prices between

$0.01 - $4.00

633,334  

$ 3.00  

$4.01 - $8.00

633,334  

$ 3.00  

Market Vesting Options

Time Vesting Options

2 unchanged sentences

Balance, December 31, 2021

689,603  

266,667  

$ 7.59  

633,334  

Forfeited or expired

( 26,712 )  

( 26,667 )  

Balance, December 31, 2022

weighted average remaining contractual life for options exercisable is 7.2 years as of December 31, 2021.

Information for Stock-Based Compensation

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.

November 17, 2021, Creative Realities’ Board of Directors updated its director compensation plan to compensate non-officer directors

resulting in the Company granting 10 -year options to purchase an aggregate of 255,000 shares of its common stock to non-employee directors

of the Company under the Company’s 2014 Stock Incentive Plan (the “Plan”).

One-third of the options vested immediately,

with the half of the remaining options vesting at each of the first and second anniversaries of the grant date.

The options have an exercise

price of $ 2.21 , the market value of the Company’s common stock on the grant date.

The fair value of the options on the grant date

was $ 1.744 and was determined using the Black-Scholes model.

633,334  

662,891  

240,000  

$ 7.59  

The weighted average remaining contractual life for options exercisable is 6.7  years as of December 31, 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 model.

Amendment to Performance Options

On June 1, 2020, Rick Mills, CEO, and Will Logan, CFO, were issued ten -year options to purchase 160,000 and 80,000 shares of common stock (the “Performance Options”), respectively, which vest in equal installments over a three -year period ( 2020 - 2022 ), subject to satisfying the Company revenue target and EBITDA (earnings before interest, taxes, depreciation and amortization) targets for the applicable year.

In each of calendar years 2020, 2021 and 2022, one - third of the total shares may vest (if the revenue and EBITDA targets are met), and the shares that are subject to vesting each year are allocated equally to each of the revenue and EBITDA targets for such year.

The Performance Options includes a catch-up provision, where any options that did not vest during a prior year due to the Company’s failure to meet a prior revenue or EBITDA target may vest in a subsequent vesting year if the revenue or EBITDA target, as applicable, is met in the future year.

On June 15, 2022, the Board approved of an amendment to the Performance Options to provide that the revenue target for the calendar year 2022 set forth therein ($ 38,000 ) is eliminated, and the remaining shares that are available for vesting under the Performance Options ( 106,667 unvested shares for Mr.

Mills and 53,334 for Mr.

Logan) (including the unvested portions of shares based on the satisfaction of the revenue targets for 2020 and 2021 by virtue of the catch-up provisions in the Performance Options) will fully vest upon the achievement of an updated EBITDA target for calendar year 2022 of $ 3,600 .

The Performance Options state that the calculation of EBITDA set forth in the Performance Options shall be calculated in a form consistent with the Company’s 2022 approved budget, which

(i) excludes any impact on EBITDA of:

(a) the accounting treatment (including any "mark-to-market accounting") of the Company's warrants or the "Guaranteed Consideration" (as defined in the Merger Agreement),

(b) non-recurring transaction expenses associated with the Merger and the capital raising financing activities of the Company to effectuate the Merger, and

(ii) includes deductions related to any cash or stock bonuses paid or payable to any employees of the Company for services provided in calendar year 2022 (even if such bonuses are actually paid after calendar year 2022 ), including bonuses paid pursuant to the terms of the 2022 Cash Bonus Plan (as described below) (collectively, the “EBITDA Calculations”).

The exercise price of the foregoing options is $ 7.59 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 $ 5.61 and was determined using the Black-Scholes model.

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.

For the year ended December 31, 2022, the Company recognized $ 849  in stock-based compensation expense related to the Performance Options, net of a benefit of $ 50 recorded for forfeiture awards, as the Company achieved the specified performance target for the performance period.

Issuance of New Options

On June 15, 2022, Messrs.

Mills and Logan received ten -year options to purchase 333,334 and 200,000 shares of common stock, respectively (the “New Options”).

The New Options are eligible to vest at any time on or prior to February 17, 2025 if the trailing 10 -trading day volume-weighted average price (“VWAP”) of the Company’s common stock, as reported on the Nasdaq Capital Market, exceeds the share price targets below, subject to such executive serving the Company as a director, officer, employee or consultant at such time:

Share Price Targets

$ 6.00  

$ 9.00  

$ 12.00  

$ 15.00  

$ 18.00  

Mills Shares Vested

16,667  

33,334  

50,000  

66,667  

83,333  

333,334  

Logan Shares Vested

10,000  

20,000  

30,000  

40,000  

50,000  

200,000  

Percentage of Shares Vested

The “Guaranteed Price”

has the meaning ascribed to such term in the Merger Agreement, which means $ 19.20 per share.

The exercise price of the New Options is $ 3.00 per share, which exceeds the closing price of the Company’s common stock on the date of issuance.

The New Options are issued from the Company’s 2014 Stock Incentive Plan, as amended.

An additional 100,000 options with identical market vesting restrictions were issued to non-executives during the year ended December 31, 2022.

The fair value of the options on the grant date varied between $ 0.63 and $ 1.11 per award as determined using the Monte Carlo model.

These values were calculated using the following weighted average assumptions:

Risk-free interest rate

Expected term

Expected term (in years)

Expected price volatility

Dividend yield

June 1, 2020 the Board of Directors of the Company granted 10-year options to purchase an aggregate of 2,380,000 shares of its common

stock to employees of the Company subject to shareholder approval of an increase in the reserve of shares authorized for issuance under

the Company’s 2014 Stock Incentive Plan (the “Plan”).

On July 10, 2020, the Company held a special meeting of the Company’s

shareholders at which the shareholders approved the amendment to the Plan, which increased the reserve of shares authorized for issuance

thereunder to 6,000,000 shares.

the 2,380,000 options awarded, 1,580,000 vest over 3 years and have an exercise price of $ 2.53 , the market value of the Company’s

common stock on the grant date.

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

At December 31, 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 year-ended December 31, 2022 the Company recorded $ 7 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 Consolidated Statements of Operations related to that tranche would be reversed.

On November 17, 2021, Creative Realities’

Board of Directors updated its director compensation plan to compensate non-officer directors resulting in the Company granting 10 -year options to purchase an aggregate of 85,000 shares of its common stock to non-employee directors of the Company under the Company’s 2014 Stock Incentive Plan (the “Plan”).

One- third of the options vested immediately, with the half of the remaining options vesting at each of the first and second anniversaries of the grant date.

The options have an exercise price of $ 6.63 , the market value of the Company’s common stock on the grant date.

The fair value of the options on the grant date was $ 5.23 and was determined using the Black-Scholes model.

These values were calculated using the following weighted average assumptions:

Risk-free interest rate

Expected term

Expected term (in years)

Expected price volatility

Dividend yield

remaining 800,000 options awarded vest in equal installments over a three-year period subject to satisfying the Company revenue target

and earnings before interest, taxes, depreciation and amortization (“EBITDA”) target for the applicable year.

calendar years 2020, 2021 and 2022, one-third of the total shares may vest (if the revenue and EBITDA targets are met), and the shares

that are subject to vesting each year are allocated equally to each of the revenue and EBITDA targets for such year.

performance options include a catch-up provision, where any options that did not vest during a prior year due to the Company’s

failure to meet a prior revenue or EBITDA target may vest in a subsequent vesting year if the revenue or EBITDA target, as applicable,

is met in the future year.

The revenue and EBITDA targets for the three plan years are as follows:

Calendar Year

Revenue Target

EBITDA Target

$ $ 32 million

$ 2.2 million

$ $ 35 million

$ 3.1 million

$ $ 38 million

$ 3.5 million

executives met the foregoing EBTIDA target for calendar year 2021.

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

The options were issued from the Company’s 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.

These values were calculated using the same weighted average assumptions as the time

vesting options issued.

Performance against the identified revenue and EBITDA targets will be assessed quarterly by the Company in order

to determine whether any compensation expense should be recorded.

No expense was recorded in 2020 as neither the revenue nor EBITDA target

were achieved.

The Company recorded stock compensation expense of $ 500 within general and administrative expense related to these awards

for current year and catch-up expense related to the achievement of the EBITDA target in 2021.

Compensation Expense Information

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.

On June 1, 2020 the Board of Directors of the Company granted 10 -year options to purchase an aggregate of 526,667 shares of its common stock to employees of the Company subject to shareholder approval of an increase in the reserve of shares authorized for issuance under the Company’s 2014 Stock Incentive Plan (the “Plan”).

On July 10, 2020, the Company held a special meeting of the Company’s shareholders at which the shareholders approved the amendment to the Plan, which increased the reserve of shares authorized for issuance thereunder to 2,000,000 shares.

The options awarded vest over 3 years and have an exercise price of $ 7.59 , the market value of the Company’s common stock on the grant date.

The fair value of the options on the grant date was $ 5.61 and was determined using the Black-Scholes model.

These values were calculated using the following weighted average assumptions:

Risk-free interest rate

Expected term (in years)

Expected price volatility

Dividend yield

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 573,334 shares for purchase by the Company’s employees and under the Amended and Restated 2006 Non-Employee Director Stock Option Plan the Company reserved 233,334  shares for purchase by the Company’s employees.

There are 4,002 options outstanding under the 2006 Equity Incentive Plan.

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 reverse stock split, the shares authorized for issuance under the Company’s 2014

Stock Incentive Plan was reduced to 600,000 .

On July 10, 2020, the Company’s shareholders approved an amendment to the Company’s

2014 Stock Incentive Plan to increase the reserve of authorized for issuance thereunder to 6,000,000 .

There are 2,856,674 options outstanding

under the 2014 Stock Incentive Plan.

Compensation expense recognized for the issuance

of stock options to employees for the years ended December 31, 2021 and 2020 of $ 1,494 and $ 620 , respectively, was included in general

and administrative expense in the Consolidated Financial Statements.

December 31, 2021, there was approximately $ 1,360 and $ 999 of total unrecognized compensation expense related to unvested share-based

awards with time vesting and performance vesting criteria for employees, 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.

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

performance metrics.

expense recognized for the issuance of stock options, including those options awarded to our Board of Directors, for the years ended

December 31, 2021 and 2020 of $ 399 and $ 100 , respectively, was included in general and administrative expense in the Consolidated Financial

At December 31, 2021, there was approximately $ 260 of total unrecognized compensation expense related to unvested share-based

awards with time vesting criteria for non-employee directors.

Generally, expense related to the time vesting options will be recognized

over the next two- years and will be adjusted for any future forfeitures as they occur.

2021, the Company engaged 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.

The Company recorded $ 130 in compensation expenses in exchange for issuance of shares during 2021.

$ 30 of the compensation

expenses were recorded as capitalized software.

have entered into various non-cancelable operating lease agreements for certain of our offices and office equipment.

Our leases have

original lease periods expiring between 2022 and 2025.

Many leases include one or more options to renew.

We do not assume

renewals in our determination of the lease term unless the renewals are deemed to be reasonably assured at lease commencement.

agreements do not contain any material residual value guarantees or material restrictive covenants.

components of lease costs, lease term and discount rate are as follows:

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 reverse stock split, the shares authorized for issuance under the Company’s 2014 Stock Incentive Plan was reduced to 600,000 .

On July 10, 2020, the Company’s shareholders approved an amendment to the Company’s 2014 Stock Incentive Plan to increase the reserve of authorized for issuance thereunder to 6,000,000 . 

Following a 1 -for- 3 reverse stock split, the shares authorized for issuance under the Company's 2014 Stock Incentive Plan was reduced to 2,000,000 . There are 1,532,242 options outstanding under the 2014 Stock Incentive Plan.

Employee Awards

Compensation expense recognized for the issuance of stock options to employees for the years ended 

December 31, 2022 and 2021 of $ 1,689 and $ 1,494 , respectively, was included in general and administrative expense in the Consolidated Financial Statements.

At December 31, 2022 , there was approximately $ 843 and $ 1,360 of total unrecognized compensation expense related to unvested share-based awards with time vesting and performance vesting criteria for employees, 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

Compensation expense recognized for the issuance of stock options, including those options awarded to our Board of Directors, for the years ended 

December 31, 2022 and 2021 of $ 198 and $ 398 , respectively, was included in general and administrative expense in the Consolidated Financial Statements.

At December 31, 2022 , there was approximately $ 62 of total unrecognized compensation expense related to unvested share-based awards with time vesting criteria for non-employee directors.

Generally, expense related to the time vesting options will be recognized over the next two - years and will be adjusted for any future forfeitures as they occur.

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 year ended December 31, 2022, the Company issued or accrued shares issuable in exchange for services in the amount of $ 125 . $ 15 of the compensation expense was recorded as capitalized software.

The Company's lease portfolio is primarily comprised of operating leases for offices.

At the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on whether the contract conveys the right to control the use of identified property or equipment for a period of time in exchange for consideration. 

Leases are classified as operating or finance leases at the commencement date of the lease. 

Operating lease right of use assets and obligations are recognized within the Consolidated Balance Sheets based on the present value of lease payments over the lease term. 

As the implicit rate is generally not readily determinable for most leases, the Company uses an incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. 

The incremental borrowing rate reflects the estimated rate of interest that the Company would pay to borrow on a collateralized basis over a similar term in a similar economic environment. 

Lease expense for operating leases is recognized on a straight-line basis over the lease term. 

Leases may include one or more options to renew.

We do not assume renewals in our determination of the lease term unless the renewals are deemed to be reasonably assured at lease commencement.

Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

For the year-ended December 31, 2022 and 2021, the Company recognized $ 579 and $ 379 , respectively, of operating lease expense. 

Operating lease expense is recognized within general and administrative expenses in the Consolidated Statements of Operations.

The following table provides lease term and discount rate information related to operating leases as of December 31, 2022:

(in thousands)

Finance lease cost

Amortization of right-of-use assets

Operating lease cost

Total lease cost

Weighted Average Remaining Lease Term

Operating leases

Finance leases

Operating leases (in years)

Weighted Average Discount Rate

Operating leases

Finance leases

following is a schedule, by years, of maturities of lease liabilities as of December 31, 2021:

10.0 %  

The following table sets forth the scheduled maturities of lease obligations as of December 31, 2022:

(in thousands)

2 unchanged sentences

Present value of lease liabilities

Lease liabilities, current

Lease liabilities, non-current

Current maturities of operating leases

Long-term obligations under operating leases

Present value of lease liabilities

cash flow information related to leases are as follows:

$ 1,584  

The following table provides supplemental information related to the Company's Consolidated Statements of Cash Flows for the years ended December 31, 2022 and 2021:

(in thousands)

1 unchanged sentence

Operating cash flows from operating leases

Financing cash flows from finance leases

PROFIT-SHARING PLAN

have a defined contribution 401(k) retirement plans for eligible associates in the United States.

Associates may contribute up to 15%

of their pretax compensation to the plan subject to IRS limitations.

Beginning on April 1, 2018, the Company began contributing an employer

contribution match of 50% of employee wages up to 6%, for an effective match of 3% .

The Company indefinitely suspended the employer match

at the end of March 2020 in response to the uncertainty of the COVID-19 pandemic and reinstated the employer match in October 2021.

have a Registered Retirement Savings Plan for eligible associates in Canada.

Associates may contribute up to 18% of earned income reported

on their tax return in the previous year, subject to legal contribution limits.

Beginning on April 1, 2018, the Company began contributing

an employer contribution match of 50% of employee wages up to 6%, for an effective match of 3% .

The Company indefinitely suspended the

employer match at the end of March 2020 in response to the uncertainty of the COVID-19 pandemic and reinstated the employer match in

October 2021.

Company contributed $ 19 and $ 35 to employee retirement plans for the year-ended December 31, 2021 and 2020, respectively.

We have a defined contribution 401 (k) retirement plans for eligible associates in the United States.

Associates may contribute up to 15 % of their pretax compensation to the plan subject to IRS limitations.

Beginning on April 1, 2018, the Company began contributing an employer contribution match of 50 % of employee wages up to 6 %, for an effective match of 3 %.

The Company indefinitely suspended the employer match at the end of March 2020 in response to the uncertainty of the COVID- 19 pandemic and reinstated the employer match in October 2021.

We have a Registered Retirement Savings Plan for eligible associates in Canada.

Associates may contribute up to 18 % of earned income reported on their tax return in the previous year, subject to legal contribution limits.

Beginning on April 1, 2018, the Company began contributing an employer contribution match of 50 % of employee wages up to 6 %, for an effective match of 3 %.

The Company indefinitely suspended the employer match at the end of March 2020 in response to the uncertainty of the COVID- 19 pandemic and reinstated the employer match in October 2021.

The Company contributed $ 142  and $ 19 to employee retirement plans for the year-ended December 31, 2022 and 2021 , respectively.

SEGMENT INFORMATION AND SIGNIFICANT CUSTOMERS/VENDORS

currently operate in one reportable segment, marketing technology solutions.

Substantially all property and equipment is located at our

offices in the United States, and a data center located in the United States.

All material sales for the years ended December 31, 2021

and 2020 were in the United States and Canada.

had two (2) customers that accounted for 41.1 % and 27.8 % of revenue for the years ended December 31, 2021 and 2020, respectively.

had two (2) and customers that in the aggregate accounted for 56.6 % and 42.6 % of accounts receivable as of December 31, 2021 and December

31, 2020, respectively.

had three (3) and two (2) vendors that accounted for 69.1 % and 46.8 % of outstanding accounts payable at December 31, 2021 and December

31, 2020, respectively.

Segment Information

We currently operate in one reportable segment, marketing technology solutions.

Substantially all property and equipment is located at our offices in the United States, and a data center located in the United States.

All material sales for the years ended 

December 31, 2022 and 2021 were in the United States and Canada.

Significant Customers

We had three ( 3 ) and two ( 2 ) customers that accounted for 44.0 % and 41.1 % of revenue for the years ended December 31, 2022 and 2021 , respectively.

We had three ( 3 ) and two ( 2 ) customers that in the aggregate accounted for 49.2 % and 56.6 % of accounts receivable as of December 31, 2022 and December 31, 2021 , respectively.

Significant Vendors

We had one ( 1 ) and three ( 3 ) vendors that accounted for 30.1 % and 69.1 % of outstanding accounts payable at December 31, 2022 and December 31, 2021 , respectively.

SUBSEQUENT EVENTS

Equity Financing

On February 3, 2022,

the Company entered into a Securities Purchase Agreement with the Purchaser for gross proceeds of approximately $ 11,000 before

deducting placement agent fees and estimated offering expenses.

The net proceeds from such equity financing were used to fund, in

part, payment of the closing cash consideration in the Merger.

A detailed explanation of this transaction is included in Note 1

to the audited annual financial statements included within this Annual Report.

Debt Financing

On February 17, 2022, the Company raised $ 10,000

in gross proceeds, or $ 9,950 in net proceeds, from entry into the Acquisition Loan with Slipstream as part of the Credit Agreement, with

an interest rate of 8.0 % and which matures on February 17, 2025.

The Company also refinanced their current debt facilities with Slipstream,

pursuant to the Credit Agreement into a single note for $ 7,185 with interest rate of 10.0 % maturing on the same date.

A detailed explanation

of this transaction is included in Note 1 to the audited annual financial statements included within this Annual Report.

Warrant Exercise

On March 18, 2022, the

Purchaser exercised 1,301,505 pre-funded warrants at an exercise price of $ 0.0001 per share in exchange for 1,301,505 shares of Company

common stock.

EXHIBIT INDEX

Stock Purchase Agreement, dated as of September 20, 2018, by and between the registrant and Christie Digital System, Inc.

(incorporated by reference to the registrant’s Current Report on Form 8-K filed with the SEC on September 20, 2018).

Agreement and Plan of Merger, dated as of November 12, 2021, by and between the registrant, CRI Acquisition Corporation, Reflect Systems, Inc., and RSI Exit Corporation (incorporated by reference to Exhibit 2.1 to the registrant’s Current Report on Form 8-K filed on November 15, 2021)

Articles of Incorporation, as amended (incorporated by reference to Exhibit 3.1 to the registrant’s Form 8-K filed with the SEC on September 17, 2014)

Articles of Amendment Filed on October 17, 2018 (incorporate by reference to Exhibit 3.3 to the registrant’s registration statement on Form S-1 filed October 17, 2018)

Series A-1 Convertible Preferred Stock Certificate of Designation of Preferences, Rights and Limitations filed October 30, 3015 (incorporated by reference to Exhibit 4.2 of the registrant’s Registration Statement on Form S-1 filed with the SEC on February 11, 2016)

Amendment to Articles of Incorporation (incorporated by reference to Exhibit 3.1 to the registrant’s Form 8-K filed with the SEC on September 17, 2014)

Articles of Amendment (incorporated by reference to Exhibit 3.1 to the registrant’s Form 8-K filed with the SEC on October 16, 2014)

Articles of Amendment Filed on October 17, 2018 (incorporated by reference to Exhibit 3.3 to the registrant’s registration statement on Form S-1 filed October 17, 2018)

Statement of Cancellation of Certificate of Designation of Series A Convertible Preferred Stock (incorporated by reference to Exhibit 3.1 to the registrant’s Form 8-K filed with the SEC on March 18, 2019)

Statement of Cancellation of Certificate of Designation of Series A-1 Convertible Preferred Stock (incorporated by reference to Exhibit 3.2 to the registrant’s Form 8-K filed with the SEC on March 18, 2019)

Amended and Restated Bylaws (incorporated by reference to the registrant’s Current Report on Form 8-K filed on November 2, 2011)

Specimen certificate evidencing shares of Common Stock (incorporated by reference to Exhibit 4.2 of the Registrant’s Registration Statement on Form SB-2 (File No.

Form of Indenture between the registrant and one or more trustees to be named (incorporated by reference to Exhibit 4.4 of the Registrant’s Registration Statement on Form S-3 (File No.

Form of Warrant Issued to Selling Stockholders (November 19, 2018 Issuance date) (incorporated by reference to Exhibit 4.2 of the Registrant’s Registration Statement on Form S-3 (File No.

Warrant dated August 10, 2017, issued in favor of Slipstream Communications, LLC (incorporated by reference to the registrant’s Form 10-Q filed with the SEC on November 14, 2017)

Warrant dated November 13, 2017, issued in favor of Slipstream Communications, LLC (incorporated by reference to the registrant’s Form S-1 filed with the SEC on June 25, 2018)

Warrant dated January 16, 2018, issued in favor of Slipstream Communications, LLC (incorporated by reference to the registrant’s Form S-1 filed with the SEC on June 25, 2018)

to Purchase Common Stock issued to Slipstream Communications, LLC on April 27, 2018 (incorporated by reference to Exhibit 10.31 of

the registrant’s Form S-1 filed with the SEC on June 25, 2018).

to Purchase Common Stock (entered into in connection with Loan and Security Agreement dated August 17, 2016) (incorporated by reference

to the registrant’s Quarterly Report on Form 10-Q filed with the SEC on November 21, 2016)

of Investor Warrant issued November 19, 2018 (incorporated by reference to Exhibit 4.3 to the registrant’s Amendment No.

to Form S-1/A filed with the SEC on November 14, 2018)

of Representative’s Warrant (incorporated by reference to Exhibit 4.4 to the registrant’s Amendment No.

3 to Form S-1/A

filed with the SEC on October 22, 2018)

of Registrant’s Securities (incorporated by reference to Exhibit 4.14 of Registrant’s Annual Report on Form 10-K for

the fiscal year ended 12/31/2019)

of Pre-Funded Warrant (incorporated by reference to Exhibit 4.1 of the registrant’s Current Report on Form 8-K filed

February 4, 2022)

Form of Common Stock Warrant (incorporated by reference to Exhibit 4.2 of the registrant’s Current Report on Form 8-K filed February 4, 2022)

Warrant dated February 17, 2022 (incorporated by reference to Exhibit 4.1 of the registrant’s Current Report on Form

8-K filed February 18, 2022)

Warrant dated February 17, 2022 (incorporated by reference to Exhibit 4.2 of the registrant’s Current Report on Form

8-K filed February 18, 2022)

and Lock-up Agreement dated November 12, 2021 among registrant, Reflect Systems, Inc.

and certain stockholders of Reflect

incorporated by reference to Exhibit 9.1 to the registrant’s Current Report on Form 8-K filed November 15,

Voting Agreement dated November 12, 2021 among registrant, Reflect Systems, Inc.

and certain stockholders of registrant(incorporated by reference to Exhibit 9.2 to the registrant’s Current Report on Form 8-K filed November 15, 2021)

Form of Warrant Agency Agreement between the Company and Computershare Trust Company, N.A.

(incorporated by reference to Exhibit 4.5 of the registrant’s registration statement on Form S-1 filed October 22, 2018)

2014 Stock Incentive Plan as amended (incorporated by reference to the registrant’s definitive proxy statement filed with the SEC on July 24, 2018)

Twelfth Amendment to Loan and Security Agreement dated January 31, 2021 by and among the Company, its subsidiaries and Slipstream Communications, LLC (incorporated by reference to Exhibit 10.1 of the registrant’s report on Form 8-K filed with the SEC on February 3, 2021)

Securities Purchase Agreement dated February 18, 2021 by and between Creative Realities, Inc.

and purchaser identified on the signature page thereto (incorporated by reference to Exhibit 10.1 of the registrant’s report on Form 8-K filed with the SEC on February 19, 2021)

Thirteenth Amendment to Loan and Security Agreement dated February 28, 2021 by and among the Company, its subsidiaries and Slipstream Communications, LLC (incorporated by reference to Exhibit 10.1 of the registrant’s report on Form 8-K filed with the SEC on March 4, 2021)

Amended and Restated

Loan and Security Agreement by and among the Company, its subsidiaries and Slipstream Communications, LLC (incorporated by reference to Exhibit 10.36 to the registrant's report on Form 10-K filed with the SEC on March