What changed in this filing

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Item 1. Financial Statements

2023-11-09 compared with 2023-08-04 · 229 added, 226 removed, 976 unchanged (32% of the section changed)

3 unchanged sentences

(In thousands, except per share amounts)

September 30,

CURRENT ASSETS

37 unchanged sentences

Contingent acquisition consideration, at fair value

11,250  

Other liabilities

10 unchanged sentences

( 54,765 )  

Total shareholders’

TOTAL SHAREHOLDERS' EQUITY

27,403  

8 unchanged sentences

For the Three Months Ended

For the Six Months Ended

For the Nine Months Ended

September 30,

Services and other

20 unchanged sentences

Net (loss) income before income taxes

Provision for income taxes

Benefit (provision) for income taxes

Net (loss) income

7 unchanged sentences

(In thousands)

Six Months Ended

Nine Months Ended

September 30,

Operating Activities:

6 unchanged sentences

Loss on warrant amendment

Change on change in fair value of warrants

Loss on settlement of obligations

Bad debt expense

Gain on change in fair value of warrants

Loss on change in fair value of contingent consideration

Loss (Gain) on change in fair value of contingent consideration

Deferred income taxes

15 unchanged sentences

Principal payments on finance leases

Proceeds from sale of common stock, net of offering expenses

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

2 unchanged sentences

Repayment of Term Loan (2022)

Repayment of Consolidation Term Loan

Repayment of Secured Promissory Note

Net cash (used in) provided by financing activities

Net cash provided by financing activities

Increase (decrease) in Cash and Cash Equivalents

5 unchanged sentences

(in thousands, except shares)

Three Months Ended June 30, 2023

Balance as of March 31, 2023

7,394,407  

$ 76,417  

$ ( 51,409 )  

$ 25,082  

Stock-based compensation

Stock-based compensation issued to vendors

14,620  

( 1,425 )  

Three Months Ended September 30, 2023

Balance as of June 30, 2023

7,409,027  

$ 76,618  

$ ( 52,834 )  

$ 23,858  

Six Months Ended June 30, 2023

Stock-based compensation

Issuance of common stock, net

Balance as of September 30, 2023

Nine Months Ended September 30, 2023

Balance as of December 31, 2022

7,266,382  

$ 75,916  

$ ( 50,409 )  

$ 25,579  

Stock-based compensation

Shares issued to directors as compensation

51,616  

Shares issued to vendors as compensation

28,554  

Shares issued to employees pursuant to the Retention Bonus Plan

62,475  

( 2,425 )  

Issuance of common stock, net

Balance as of September 30, 2023

Three Months Ended September 30, 2022

Balance as of June 30, 2022

7,409,027  

$ 76,618  

$ ( 52,834 )  

$ 23,858  

Three Months Ended June 30, 2022

Balance as of March 31, 2022

7,225,012  

$ 68,771  

$ ( 49,783 )  

$ 19,060  

Stock-based compensation

Stock-based compensation issued to vendors

22,943  

Warrant amendment

Balance as of June 30, 2022

7,247,955  

$ 74,886  

$ ( 48,521 )  

$ 26,437  

Six Months Ended June 30, 2022

Shares issued to vendors as compensation

Balance as of September 30, 2022

Nine Months Ended September 30, 2022

Balance as of December 31, 2021

4,002,843  

$ 60,943  

$ ( 52,254 )  

$ 8,729  

Stock-based compensation

Shares issued to vendors as compensation

22,943  

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

2,388,835  

Shares issued in Reflect Systems, Inc.

833,334  

Warrant repricing events

( 31 )  

Warrant amendment

Balance as of June 30, 2022

7,247,955  

$ 74,886  

$ ( 48,521 )  

$ 26,437  

Balance as of September 30, 2022

See accompanying notes to condensed consolidated financial statements.

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

our, ” “

Creative Realities ” 

 and “

the Company ”

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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.

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.

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

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Similarly, the number of shares of common stock issuable upon exercise of outstanding warrants were reduced in proportion to the reverse stock split, and the exercise prices of outstanding warrants were proportionately increased.

Public Offering

On August 17, 2023, the Company priced a "reasonable best efforts" public offering for the sale by the Company of an aggregate of 3,000,000 shares of common stock, par value $ 0.01 per share at a public offering price of $ 2.00 per share and received approximately $ 5,454 in net proceeds, after deducting underwriting fees of $ 478 and offering costs of $ 68 .

Liquidity and Financial Condition

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) , the Company has evaluated whether there are certain conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the Condensed Consolidated Financial Statements are issued.

At June 30, 2023, the Company has an accumulated deficit of $ 52,834 , negative working capital of $ 6,071 , including current debt obligations of $ 4,197 , and cash of $3,264.

For the six months ended June 30, 2023, the Company incurred an operating loss of $ 790 and generated positive net cash flows from operations of $ 6,344 .

In addition, pursuant to the Second Amended and Restated Credit and Security Agreement (the "Credit Agreement") made between the Company and Slipstream Communications ("Slipstream") the Company is required to make monthly repayments of principal on the Consolidation Term Loan beginning on September 1, 2023 and on the first day of each month thereafter until the Maturity Date on February 17, 2025. 

The monthly principal payment beginning on September 1, 2023 

is approximately $ 399 , or total principal repayments for the twelve months subsequent to the reporting date of these Condensed Consolidated Financial Statements of $ 4,389 . As a result of the principal debt service payments required to be paid on account of the Consolidation Term Loan, the Company does not currently have cash on hand or committed available liquidity to repay all of its outstanding debt due within one year after the date that these financial statements are issued. These conditions and events raise substantial doubt about the Company's ability to continue as a going concern under the technical framework within ASU 205 - 40.

In response to these conditions, management plans to either refinance or recapitalize the debt. However, these plans have not been finalized and are not completely within the Company's control, and therefore cannot be deemed probable under ASU 205 - 40.

We have been unable to obtain a continuing support letter from Slipstream beyond the period ending May 31, 2024.

Obtaining a continuing support letter from Slipstream beyond one year of the date our financial statements were issued was a factor that previously alleviated the substantial doubt about our ability to continue as a going concern. As a result, the Company has concluded that management's plans do not alleviate substantial doubt about the Company's ability to continue as a going concern.  

At September 30, 2023, the Company has an accumulated deficit of $ 54,765 , negative working capital of $ 2,157 , including current debt obligations of $ 4,211 , and cash of $ 8,376 .

For the nine  months ended September 30, 2023, the Company incurred an operating loss of $ 630 and generated positive net cash flows from operations of $ 8,306 .

Pursuant to the Second Amended and Restated Credit and Security Agreement (the "Credit Agreement") made between the Company and Slipstream Communications, LLC ("Slipstream"), the Company is required and began to make monthly repayments of principal on the Consolidation Term Loan on September 1, 2023.

The monthly principal payment is approximately $ 370 and will continue on the first day of each month thereafter until the Maturity Date on February 17, 2025, with total principal repayments of $ 4,440 during the twelve months subsequent to the reporting date of these Condensed Consolidated Financial Statements. Servicing this principal repayment raises substantial doubt about the Company's ability to continue as a going concern under the technical framework within ASU 205 - 40.

Management plans to control resource allocation with respect to new opportunities, implement more aggressive customer deposit protocols, transition portions of its workforce to just-in-time models, and implement other cost cutting initiatives to align cash spend with revenue production to ensure adequate debt servicing;

however the supplemental plans have not been fully implemented and the level of improvement to be achieved is uncertain. As a result, the Company has concluded that management's plans do not alleviate substantial doubt about the Company's ability to continue as a going concern.  

The Condensed Consolidated Financial Statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of this uncertainty.

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Credit Losses , which requires entities to estimate expected lifetime credit losses on financial assets and provide expanded disclosures.

The ASU replaced the incurred loss methodology with one that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates.

This ASU replaced the incurred loss methodology with one that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates.

We adopted ASU No.

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This guidance also eliminates the treasury stock method to calculate diluted earnings per share for convertible instruments and requires the use of the if-converted method. This guidance will be effective for us in the first quarter of 2024 on a full or modified retrospective basis, with early adoption permitted.

We do not intend to early adopt this standard, nor do we expect the adoption of this guidance to have a material impact on our Consolidated Financial Statements.

We do not intend to adopt this standard early, nor do we expect the adoption of this guidance to have a material impact on our Consolidated Financial Statements.

Revenue Recognition

We recognize revenue in accordance with ASC 606, Revenue from Contracts with Customers , applying the five -step model.

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.

We recognize revenue in accordance with Accounting Standards Codification ("ASC") 606, Revenue from Contracts with Customers , applying the five -step model.

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

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The allowance for credit losses is included in accounts receivable, net in the accompanying Condensed Consolidated Balance Sheets.

The Company had the following activity for its allowance for credit losses from December 31, 2022 to June 30, 2023:

The Company had the following activity for its allowance for credit losses from December 31, 2022 to September 30, 2023:

Balance as of December 31, 2022

1 unchanged sentence

Write-offs charged against the allowance

Balance as of June 30, 2023

Balance as of September 30, 2023

$ 1,074  

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:

September 30,

Raw materials, net of reserve

$ 1,745  

$ 1,671  

Work-in-process

2 unchanged sentences

$ 2,267  

The reserve for obsolete inventory at June 30, 2023 and December 31, 2022 was $ 1,895 and $ 1,777 , respectively, of which $ 1,707 related to Safe Space Solutions. 

The reserve for obsolete inventory at September 30, 2023 and December 31, 2022 was $ 192 and $ 1,777 , respectively. 

The Company disposed of $ 1,707 related to Safe Space Solutions during the three month period ending September 

30, 2023, all of which was fully reserved at December 31, 2022. 

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

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 .

We review the carrying value of all long-lived assets, including property and equipment, for impairment in accordance with ASC 360, Accounting for the Impairment or Disposal of Long-Lived Assets .

Under ASC 360, impairment losses are recorded whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable.

8 unchanged sentences

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 7,391,651  and 7,490,962  at June 30, 2023 and 2022, respectively, were excluded from the computation of (loss)/earnings per share as the strike price on the options and warrants were higher than the Company's market price and therefore anti-dilutive.

Shares reserved for outstanding stock options, including stock options with performance restricted vesting, and warrants totaling approximately 7,391,651  and 7,490,962  at September 30, 2023 and 2022, respectively, were excluded from the computation of (loss)/earnings 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.

2 unchanged sentences

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 June 30, 2023 and December 31, 2022 .

We had no uncertain tax positions as of September 30, 2023 and December 31, 2022 .

Goodwill and Intangible Assets

We follow the provisions of ASC 350,  Goodwill and Other Intangible Assets.

We follow the provisions of ASC 350,  

Goodwill and Other Intangible Assets .

Pursuant to ASC 350, goodwill acquired in a purchase business combination is not amortized, but instead tested for impairment at least annually.

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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 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.

REVENUE RECOGNITION

The Company applies ASC 606 for revenue recognition.

The following table disaggregates the Company’s revenue by major source for the three and six months ended June 30, 2023 and 2022 :

The following table disaggregates the Company’s revenue by major source for the three  and nine months ended September 30, 2023 and 2022 :

September 30,

(in thousands)

6 unchanged sentences

Managed Services

12,227  

10,435  

Total Services

18,102  

15,719  

Total Hardware and Services

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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”

Software as a service revenues are classified as “Managed Services”

within our disaggregated revenue.

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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.

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).

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On November 12, 2021, the Company and 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.”

and February 11, 2023, the "Merger Agreement") pursuant to which a direct, wholly owned subsidiary of Creative Realities, CRI Acquisition Corporation, 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 (the "Closing").

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Purchase price

The preliminary purchase price of Reflect consisted of the following items:

The purchase price of Reflect consisted of the following items:

(in thousands)

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Represents the Reflect cash balance acquired at Closing.

The Company incurred $ 37 and $ 428 of direct transaction costs for the three and six months ended June 30, 2022, respectively.

The Company incurred $ 37 and $ 428 of direct transaction costs for the three  and nine months ended September 30, 2022, respectively.

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

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SUPPLEMENTAL CASH FLOW STATEMENT INFORMATION

Six Months Ended

Nine Months Ended

September 30,

Supplemental non-cash investing activities

4 unchanged sentences

Conversion of liability warrant to equity warrants

$ 5,709  

Supplemental disclosure information for cash flow

Cash paid during the period for:

$ 1,040  

Operating leases

3 unchanged sentences

Intangible assets consisted of the following at 

June 30, 2023 and December 31, 2022 :

September 30, 2023 and December 31, 2022 :

September 30,

Technology platform

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$ 23,752  

For the three months ended June 30, 2023 and 2022 , amortization of intangible assets charged to operations was $ 755 and $ 431 , respectively.

For the six months ended June 30, 2023 and 2022  amortization of intangible assets charged to operations was $ 1,508 and $ 1,111 , respectively.

For the three months ended September 30, 2023 and 2022 , amortization of intangible assets charged to operations was $ 766 and $ 848 , respectively.

For the nine months ended September 30, 2023 and 2022  amortization of intangible assets charged to operations was $ 2,274 and $ 1,959 , respectively.

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

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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, 2023.

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.

No indicators of impairment were identified as of June 30, 2023.

The Company recognizes that any differences between our actual and projected future results, or changes in our projected 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 Company recognizes that any changes in our actual fourth quarter 2023 or projected 2024 results could potentially have a material impact on our assessment of goodwill impairment.

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

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

Should any indicators of impairment occur in subsequent periods, the Company will be required to perform an analysis in order to determine whether goodwill is impaired.

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 both macroeconomic and recent capital transaction factors including:

( 1 ) market wide recessionary fears, ( 2 ) a lack of comprehension by the markets of the contingent consideration issued in the Merger with Reflect, and ( 3 ) the Company’s recent execution of a public offering of 3,000,000 shares of our common stock at a discount to then-market prices, resulting in significant short-term negative volume and price pressure on our common 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 September 30, 2023.

However, should our market price remain at this level for an extended period of time, there could be potential future impairment.

Based on the relatively recent decline in our share price and market capitalization, along with improving Company fundamentals and a share price and market capitalization that was substantially higher prior to the Company’s public offering, we believe our implied fair value continues to exceed our total carrying value.

LOANS PAYABLE

1 unchanged sentence

Further discussion of the debt follows.

As of June 30, 2023

As of September 30, 2023

Interest Rate Information

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10.0% interest (3)

12.5% interest (4)

Total debt, gross

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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 during the six month period ending June 30, 2022, primarily associated with the write-off of pre-existing debt discounts.

In aggregate the Company recorded a loss on extinguishment of $ 295 during the nine month period ending September 30, 2022, 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.

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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 $ 358 and $ 714 for the three and six  months ended June 30, 2023, respectively. The Company has deemed straight-line amortization to be materially consistent with the effective interest method.

These amounts are being amortized straight-line through interest expense over the life of the loans, resulting in incremental interest expense of $ 363 and $ 1,077 for the three and nine months ended September 

30, 2023, respectively. 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;

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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 ( 2022 ) through the maturity date.

At September 30, 2023, the Term Loan 2022 has been repaid in full to the Borrowers. 

COMMITMENTS AND CONTINGENCIES

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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 with a definite life.

For the three and six months ended June 30, 2023, we reported tax liability of $ 45 and $ 88 , respectively.

As of June 30, 2023 , the net deferred tax liabilities totaled $ 75 after valuation allowance, compared to net tax liabilities of $ 28 at 

For the three and nine months ended September 

30, 2023, we reported tax (benefit) liability of ( 15 ) and 73 , respectively.

As of September 30, 2023 , the net deferred tax liabilities totaled 72 after valuation allowance, compared to net tax liabilities of $ 28 at 

December 31, 2022 .

5 unchanged sentences

( 68,508 )  

Balance June 30, 2023

Balance September 30, 2023

5,755,519  

1 unchanged sentence

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. During the six months ended June 30, 2022, each of the Pre-Funded Warrants were exercised.

30, 2022, each of the Pre-Funded Warrants were exercised.

The Common Stock Warrants expire 

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not an input into the pricing of a fixed-for-fixed option on the Company’s ordinary shares, the Common Stock Warrants are not considered to be indexed to the Company’s own stock.

The Company recorded these warrants as liabilities on the Condensed Consolidated Balance Sheets at fair value, with subsequent changes in their respective fair values recognized in the Condensed 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 the Common Stock Warrants as liabilities on the Condensed Consolidated Balance Sheets at fair value, with subsequent changes in their respective fair values recognized in the Condensed Consolidated Statements of Operations at each reporting date.

At the date of issuance, the Company performed a Black-Scholes valuation of the Common Stock Warrants, resulting in a fair value of $ 3.2781 per Common Stock Warrant.

At June 

30, 2022, the Company reassessed the fair value of these warrants via Black Scholes valuation methodology and determined that the fair value of these warrants was $ 1.2057 per warrant, resulting in the Company recording a gain on the fair value of these warrants of $ 1,287 and $ 4,950  in the Condensed Consolidated Statement of Operations for the three and six months ended June 30, 2022.

30, 2022, the Company reassessed the fair value of the Common Stock Warrants via Black Scholes valuation methodology and determined that the fair value of the Common Stock Warrants was $ 1.2057 per Common Stock Warrant, resulting in the Company recording a gain on the fair value of the Common Stock Warrants of $ 4,950  in the Condensed Consolidated Statement of Operations for the nine months ended September 30, 2022.

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.

17, 2022, in connection with the Credit Agreement with Slipstream, the Company issued to Slipstream the Lender Warrants.

The Lender Warrants are not exercisable until 180 days after the issuance date.

The common shares underlying the Lender 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 Lender Warrants becomes exercisable until such time as such registration occurs.

The Lender Warrants expire five years from the date of issuance.

The Company evaluated the Lender Warrant and concluded that it does not meet the criteria to be classified within stockholders’

The Lender Warrant includes provisions which could result in a different settlement value, for the Lender Warrant depending on the registration status of the underlying shares.

Because these conditions are not an input into the pricing of a fixed-for-fixed option on the Company’s ordinary shares, the Lender Warrant is 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 Condensed 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 Condensed Consolidated Balance Sheet associated with the issuance of the warrants of $ 4,223 , which is being amortized through interest expense in the Condensed Consolidated Statement of Operations over the life of the Acquisition Term Loan and Consolidation Term Loans.

At June 30, 2022, the Company reassessed the fair value of these warrants via Black Scholes valuation methodology and determined that the fair value of these warrants was $ 1.1097 per warrant, resulting in the Company recording a gain on the fair value of these warrants of $ 894 and $ 2,302 in the Condensed Consolidated Statement of Operations for the three and six months ended June 30, 2022.

The Company evaluated the Lender Warrants and concluded that they do not meet the criteria to be classified within stockholders’

The Lender Warrants include provisions which could result in a different settlement value, for the Lender Warrants depending on the registration status of the underlying shares.

Because these conditions are not an input into the pricing of a fixed-for-fixed option on the Company’s ordinary shares, the Lender Warrants are not considered to be indexed to the Company’s own stock.

The Company recorded the Lender Warrants as liabilities on the consolidated balance sheets at fair value, with subsequent changes in their respective fair values recognized in the Condensed Consolidated Statements of Operations at each reporting date.

At the date of issuance, the Company performed a Black-Scholes valuation of the Lender Warrants, resulting in a fair value of $ 2.4387 per Lender Warrant.

In recording the Lender Warrants liability, the Company recorded an increase in debt discount in the Condensed Consolidated Balance Sheet associated with the issuance of the Lender 

Warrants of $ 4,223 , which is being amortized through interest expense in the Condensed Consolidated Statement of Operations over the life of the Acquisition Term Loan and Consolidation Term Loans.

At June 30, 2022, the Company reassessed the fair value of the Lender Warrants via Black Scholes valuation methodology and determined that the fair value of the Lender Warrants was $ 1.1097 per Lender Warrant, resulting in the Company recording a gain on the fair value of the Lender Warrants of $ 2,302 in the Condensed Consolidated Statement of Operations for the nine months ended September 30, 2022.

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 

The Purchaser Warrant expires 

The number of shares of Company common stock subject to the Purchaser Warrants is equal to the waiver fee ($ 175 ) divided by $ 0.375  per share.

The exercise price of the Purchaser Warrants is $ 4.23 per share, and the Purchaser Warrants are 

not exercisable until August 

The Purchaser Warrants expire 

five years from the date of issuance.

The Company evaluated the Purchaser Warrant and concluded that it does not meet the criteria to be classified within stockholders’

The Purchaser Warrant includes 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 is 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 Condensed Consolidated Statement of Operations associated with the issuance of the Purchaser Warrant of $ 1,211 .

At June 30, 2022, the Company reassessed the fair value of the Purchase Warrant via Black Scholes valuation methodology and determined that the fair value of the Purchaser Warrant was $ 1.2051 per warrant, resulting in the Company recording a gain on the fair value of the Purchaser Warrant of $ 252 and $ 650 in the Condensed Consolidated Statement of Operations for the three and six months ended June 30, 2022.

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 Company evaluated the Purchaser Warrants and concluded that they do not meet the criteria to be classified within stockholders’

The Purchaser Warrants include provisions which could result in a different settlement value, for the Purchaser Warrants 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 Warrants are not considered to be indexed to the Company’s own stock.

The Company recorded the Purchaser Warrants as liabilities on the Condensed Consolidated Balance Sheets at fair value, with subsequent changes in their respective fair values recognized in the Condensed Consolidated Statements of Operations at each reporting date.

At the date of issuance, the Company performed a Black-Scholes valuation of the Purchaser Warrants, resulting in a fair value of $ 2.5968 per Purchaser Warrant.

In recording the Purchaser Warrants liability, the Company recorded an expense in the Condensed Consolidated Statement of Operations associated with the issuance of the Purchaser Warrants of $ 1,211 .

At June 30, 2022, the Company reassessed the fair value of the Purchaser Warrants via Black Scholes valuation methodology and determined that the fair value of the Purchaser Warrants was $ 1.2051 per Purchaser Warrant, resulting in the Company recording a gain on the fair value of the Purchaser Warrants of $ 650 in the Condensed Consolidated Statement of Operations for the nine months ended September 

Effective June 30, 2022, the Company amended the terms of the Common Stock Warrants ( 2,388,836 warrants), Lender Warrants ( 1,731,499 warrants) and Purchaser Warrants ( 466,667 warrants).

The amendments to such warrants removes the holder’s option to determine the value of such warrants utilizing the 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 had 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.

The amendments to the warrants also extend the term of such warrants for an additional one year, such that the Common Stock Warrants will expire on February 3, 2028, and the Lender Warrants and Purchaser Warrants will expire on February 17, 2028.

The foregoing amendments to the warrants resulted in such warrants to be accounted for as equity instruments on the Company’s Condensed Consolidated Financial Statements as of June 30, 2022.

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Balance, December 31, 2022

633,334  

662,910  

$ 10.02  

240,000  

$ 7.59  

100,000  

Forfeited or expired

Balance, June 30, 2023

The weighted average remaining contractual life for options exercisable is 6.53 years as of June 30, 2023 .

( 112 )  

162.00  

Balance, September 30, 2023

733,334  

662,798  

240,000  

$ 7.59  

The weighted average remaining contractual life for options exercisable is 6.28 years as of September 30, 2023 .

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.

For purposes of determining estimated fair value under ASC 718 - 10, Stock Compensation , the Company computed the estimated fair values of stock options using the Black-Scholes model.

Amendment to Performance Options

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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

excludes any impact on EBITDA of:

excluded 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),

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(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”).

(ii) included 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).

The unvested portion of the Performance Options as of December 31, 2022 vested in full effective March 30, 2023 upon confirmation by the Board of Directors of achievement of the performance metrics for the year ended December 31, 2022.

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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

2 unchanged sentences

The exercise price of the New Options is $ 3.00 per share, which exceeded the closing price of the Company’s common stock on the date of issuance (as adjusted by the Company's 1 -for- 3 reverse stock split in March 2023).

The New Options are issued from the Company’s 2014 Stock Incentive Plan, as amended.

The New Options were 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.

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Dividend yield

At June 30, 2023, the Company evaluated the probability of achieving the share price targets in each tranche based, in part, on work performed by the Company’s third party valuation specialist in conjunction with evaluating the equity guarantee contingent liability.

As a result of that evaluation of probability, during the three  and six month period ending 

June 30, 2023 the Company recorded $ 4 and $ 7  of compensation expense, respectively.

At September 30, 2023, the Company evaluated the probability of achieving the share price targets in each tranche based, in part, on work performed by the Company’s third party valuation specialist in conjunction with evaluating the equity guarantee contingent liability.

As a result of that evaluation of probability, during the three  and nine month period ending 

September 

30, 2023 the Company recorded $ 3 and $ 10 of compensation expense, respectively.

These awards have not yet vested and are subject to actual share price performance through February 2025.

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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 1,632,242 options outstanding under the 2014 Stock Incentive Plan.

The 2014 Stock Incentive Plan expired in April 2023 ( other than with respect to outstanding options issued under the 2014 Stock Incentive Plan).

Employee Awards

Compensation expense recognized for the issuance of stock options to employees for the 

three and six months ended June 30, 2023 of $ 152  and $ 377 , respectively, was included in general and administrative expense in the Condensed Consolidated Financial Statements.

three and nine months ended September 

30, 2023 of $ 3  and $ 379 , respectively, was included in general and administrative expense in the Condensed Consolidated Financial Statements.

Compensation expense recognized for the issuance of stock options to employees for the 

three and six months ended June 30, 2022 of $ 398 and $ 948 , respectively, was included in general and administrative expense in the Condensed Consolidated Financial Statements

June 30, 2023 , there was $ 498 of total unrecognized compensation expense related to unvested share-based awards with performance vesting criteria for employees.

three and nine months ended September 

30, 2022 of $ 456 and $ 1,241 , respectively, was included in general and administrative expense in the Condensed Consolidated Financial Statements.

September 30, 2023 , there was $ 19 of total unrecognized compensation expense related to unvested share-based awards with performance vesting criteria for employees.

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 to our Board of Directors, for the three and six month period ended 

June 30, 2023 of $ 43  and $ 86 , was included in general and administrative expense in the Condensed Consolidated Financial Statements.

Compensation expense recognized for the issuance of stock options to our Board of Directors, for the three and six month period ended June 30, 2022 of $ 356 and $ 895 , was included in general and administrative expenses in the Condensed Consolidated Financial Statements.

At June 30, 2023, there was approximately $ 65 of total unrecognized compensation expense related to unvested share-based awards with time vesting criteria for non-employee directors.

Compensation expense recognized for the issuance of stock options to our Board of Directors, for the three and nine month period ended September 

30, 2023 of $ 43  and $ 129 , was included in general and administrative expense in the Condensed Consolidated Financial Statements.

Compensation expense recognized for the issuance of stock options to our Board of Directors, for the three and nine month period ended September 

30, 2022 of $ 82 and $ 246 , was included in general and administrative expenses in the Condensed Consolidated Financial Statements.

At September 30, 2023, there was approximately $ 22  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 year and will be adjusted for any future forfeitures as they occur.

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Shares issued for services were calculated based on the ten ( 10 ) day VWAP for the last ten ( 10 ) days during the month of service provided.

During the three and six months ended June 30, 2023 , the Company issued shares issuable in exchange for services in the amount of $ 30 and $ 55 , respectively. 

During the three and six months ended June 30, 2022, the Company issued shares issuable in exchange for services in the amount of $ 45 and $ 70 , respectively.

During the three and nine months ended September 30, 2023 , the Company issued shares issuable in exchange for services in the amount of $ 0 and $ 55 , respectively. 

During the three and nine months ended September 

30, 2022, the Company issued shares issuable in exchange for services in the amount of $ 30 and $ 100 , respectively.

SIGNIFICANT CUSTOMERS/VENDORS

Significant Customers

We had two customers that in the aggregate accounted for 28.3 % of accounts receivable at June 30, 2023 

We had one customer that accounted for 18.3 % of accounts receivable at September 30, 2023 

three customers that in the aggregate accounted for 49.2 % of accounts receivable at 

December 31, 2022 .

We had three customers that in the aggregate accounted for 33.5 % of revenue for the three months ended 

June 30, 2023 , compared to two customers that in the aggregate accounted for 37.5 % of revenue for the three months ended June 30, 2022.

We had two customers that in the aggregate accounted for 29.7 % of revenue for the six months ended 

June 30, 2023 , compared to three customers that in the aggregate accounted for 54.3 % of revenue for the six months ended June 30, 2022.

We had one customer that accounted for 19.7 % of revenue for the three months ended 

September 30, 2023 , compared to two customers that in the aggregate accounted for 36.1 % of revenue for the three months ended September 

We had one customer that accounted for 12.8 % of revenue for the nine months ended 

September 30, 2023 , compared to three customers that in the aggregate accounted for 49.2 % of revenue for the nine months ended September 30, 2022.

Significant Vendors

We had one vendor that in the aggregate accounted for 36.1 % of outstanding accounts payable at 

June 30, 2023 , and one vendor that accounted for 30.1 % of outstanding accounts payable at 

We had one vendor that accounted for 43.3 % of outstanding accounts payable at 

September 30, 2023 , and one vendor that accounted for 30.1 % of outstanding accounts payable at 

December 31, 2022 .

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Consequently, the Special Committee has advised Pegasus that it has rejected the proposal.

Please see Note 5 Business Combinations , Note 8 Loans Payable , Note 11 Warrants , and Note 12 Stock-based Compensation to the Company’s Condensed Consolidated Financial Statements contained in this Report for a description of recent developments of the Company that occurred during, and subsequent to, the three and six months ended June 30, 2023.

Critical Accounting Policies and Estimates

5 unchanged sentences

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

Three Months Ended June 30, 2023 Compared to Three Months Ended June 30, 2022

Three Months Ended September 30, 2023 Compared to Three Months Ended September 30, 2022

The tables presented below compare our results of operations and present the results for each period and the change in those results from one period to another in both dollars and percentage change.

For the three months

ended June 30,

ended September 30,

Cost of sales

5 unchanged sentences

Total operating expenses

Operating (loss) income

Operating income (loss)

Other income/(expenses):

Interest expense

Change in fair value of warrant liability

Change in fair value of equity guarantee

Loss on warrant amendment

Gain on settlement of obligations

Other income/(expense)

Other expense

Total other income/(expenses)

Net loss income before income taxes

Provision for income taxes

Net (loss) income

Sales were $9,196, representing a decrease of $1,727, or 16%, as compared to the same period in 2022.

Hardware revenues were $3,437 for the three month period ended June 30, 2023, a decrease of $2,230, or 39%, as compared to the prior year.

Hardware revenues generated during the three month period ended June 30, 2022 were driven by two customers which refreshed their digital hardware throughout their entire geographic footprint.

These refresh activities are cyclical in nature and no current customer executed a similar large scale refresh during the three months ended June 30, 2023. Those refresh activities represented $2,418 in incremental hardware revenue during the three months ended June 30, 2022. Services and other revenues were $5,759 for the three month period ended June 30, 2023, an increase of $503, or 10%, driven primarily by increases in installation services revenue.

Gross profit decreased by $364, or 8% during the three months ended June 30, 2023 as compared to the same period in 2022 driven by an increase in installation services revenue.

Gross profit margin increased to 47% during the three months ended June 30, 2023, from 43% in the same period in 2022 driven by (1) favorable revenue mix during the three months ended June 30, 2023 as managed services, which includes higher margin SaaS and other services revenues, increased to 42% of total revenue as compared to 35% of total revenues in the three months ended June 30, 2022, and (2) margin expansion in hardware, partially offset by reduced revenue in the current year.

Benefit from income taxes

Sales were $11,568, representing an increase of $388, or 3%, as compared to the same period in 2022.

Hardware revenues were $4,847, a decrease of $168, or 3%, as compared to the prior year, of which approximately $3.0 million were earned from customers new to the Company in 2023.

Services and other revenues were $6,721, an increase of $556, or 9%, driven by year over year increases of (1) $543 in media sales attributable to the addition of sales resources and restructuring of third party selling contracts to expand its access to such agents, and (2) $420 in managed services revenue as a result of increasing SaaS license counts which drive annual recurring revenue on a per device per month basis. 

These increases in services revenue were partially offset by a $505 decrease in installation services revenue as deployment of hardware sold during the quarter associated with multiple advertising networks did not begin installation activities until the fourth quarter of 2023.

Gross profit increased $789, or 17% driven by enhanced margins on hardware revenues and an increase in services revenue.

Gross profit margin increased to 46% from 40% driven by (1) favorable revenue mix during the period as managed services, which includes higher margin SaaS and other services revenues, increased to 37% of total revenue as compared to 35% of total revenues in the three months ended September 30, 2022, and (2) a 6% margin expansion associated with hardware revenues generated in the current year primarily generated from sales of custom manufactured kiosks purchased for deployment of an advertising network.

Sales and Marketing Expenses

5 unchanged sentences

Through completion of the Merger, the Company also acquired a media sales business unit that serves to monetize customer networks via the direct sale of advertising to be displayed on digital advertising networks owned by those customers.

This business utilizes internal and third-party sales agents - the salaries and commissions of which are included within Sales and Marketing Expense within the Condensed Consolidated Statement of Operations. We expect the sales and marketing expenses of the Company for the three months ended June 30, 2023 to adequately reflect normal spend in these areas in future reporting periods.

Research and Development Expenses

Research and development expenses generally include personnel and development tools costs associated with the continued development of the Company’s content management systems and other related application development.

The Company capitalizes certain of these expenses and amortizes those costs through the Condensed Consolidated Statement of Operations on a straight-line basis over the economic useful life of the software feature or functionality. Research and development expenses decreased by $41, or 10%, for the three month period ended June 30, 2023 as compared to the same period in 2022 driven primarily by an elevated level of capitalized activity during the current quarter associated with a customer-facing opportunity.

The Company capitalizes certain of these expenses and amortizes those costs through the Condensed Consolidated Statement of Operations on a straight-line basis over the economic useful life of the software feature or functionality. Research and development expenses increased by $155, or 65%, for the three month period ended September 30, 2023 as compared to the same period in 2022 driven primarily by incremental headcount added via completion of the Merger on February 17, 2022 and a higher rate of bug and maintenance work as compared to capitalized activities during the quarter ended September 30, 2023.

Through the Merger, we acquired a fully staffed, experienced software development team and elected to keep that team in-tact, particularly given current competitive employment market conditions with respect to talented software engineers.

We integrated the development teams which has enhanced speed to market on new feature and functionality development activities.

General and Administrative Expenses

General and administrative expenses were effectively flat, increasing $33, or 1%. Compared to the three months ended June 30, 2022, the Company experienced decreases of (1) $203 in stock compensation expense as outstanding performance awards were fully expensed as of December 31, 2022, and (2) reductions in certain expenses following completion of integration activities/projects completed during 2022 following the Merger (including but not limited to consolidation of CMS tools, cloud hosting environments, IT tools) that materialized through the balance of 2022.

These decreases were offset by increases of $278 in increased personnel costs as a result of higher headcount following the Merger and scaled up operations in response to an increase in customer acquisitions.

General and administrative expenses decreased $215, or 8% during the three months ended September 30, 2023 as compared to the same period in 2022 driven by a decrease of $492 in stock compensation expense as outstanding performance awards were fully expensed as of December 31, 2022.

This decrease was partially offset by increased personnel costs as a result of higher headcount following the Merger and scaled up operations in response to an increase in customer acquisition and associated planned deployments.

Depreciation and Amortization Expenses

Depreciation and amortization expenses increased $329, or 70%, in the three months ended June 30, 2023 compared to the same period in 2022, driven by incremental amortization expense generated from the addition of $17,160 in amortizing intangible assets on February 17, 2022, as a result of the Merger, and a measurement period adjustment recorded during the three months ended June 30, 2022 which artificially reduced the total depreciation and amortization expense.

The Company current expects depreciation and amortization expense to be approximately $800 per quarter for the remainder of 2023.

Depreciation and amortization expenses were effectively flat, decreasing $68, or 8%, in the three months ended September 30, 2023 compared to the same period in 2022.

The Company currently expects depreciation and amortization expense to be approximately $800 per quarter for the remainder of 2023.

Interest Expense

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

Changes in Fair Value of Warrant Liability

During the three month period ended June 30, 2022, the Company recorded a gain of $2,433 as the result of assessing the fair value of warrant liabilities associated with the Company’s issuance of warrants in its debt and equity offerings completed in February 2022 to finance the Merger.

These warrants were initially assessed at fair value through Black Scholes calculation, with changes in fair value recognized at each period end.

Loss on Warrant Amendment

Effective June 30, 2022, the Company amended the terms of certain warrants previously issued to its creditor and an investor, which removed the holder’s option to exercise such warrants on a cashless basis utilizing the VWAP of the Company’s common stock on the trading day immediately preceding the date of a notice of cashless exercise in certain circumstances, and removed the condition to exercising such warrants that the Company’s shareholders approve the exercise thereof (which had already been obtained).

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

As a result of the extension in term provided in exchange for the amendment, the Company reassessed the fair value of those warrants, resulting in the Company recording a loss on the fair value of these warrants of $345.

The foregoing amendments to the warrants resulted in such warrants to be accounted for as equity instruments on the Company’s Condensed Consolidated Financial Statements as of June 30, 2022.

Six Months Ended June 30, 2023 Compared to Six Months Ended June 30, 2022

Changes in fair value of equity guarantee

The Company has contingent consideration arrangements related to the Merger to potentially pay additional cash amounts in future periods based on the lack of achievement of certain share price performance goals of our common stock.

Such contingent consideration arrangements are recorded at fair value and are classified as liabilities on the acquisition date and are remeasured at each reporting period in accordance with ASC 805-30-35-1 using a Monte Carlo simulation model.

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

Nine Months Ended September 30, 2023 Compared to Nine Months Ended September 30, 2022

The tables presented below compare our results of operations and present the results for each period and the change in those results from one period to another in both dollars and percentage change.

For the Six Months

Ended June 30,

For the Nine Months

Ended September 30,

Cost of sales

18 unchanged sentences

Sales were $30,708, representing a decrease of $2,152, or 7%, as compared to the same period in 2022.

Hardware revenues were $7,759 for the six month period ended June 30, 2023 as compared to $12,126 for the six month period ended June 30, 2022, a decrease of $4,367, or 36%.

Hardware revenues generated during the six month period ended June 30, 2023 were driven by two customers which refreshed their digital hardware throughout their entire geographic footprint .

These refresh activities are cyclical in nature and no current customer executed a similar large scale refresh during the six months ended June 30, 2023. Those refresh activities represented $4,418 in incremental hardware revenue during the six months ended June 30, 2022.

Services and other revenues were $11,381 for the six month period ended June 30, 2023, an increase of $1,827, or 19%, driven by growth in managed services revenue. Managed services revenue, which includes both SaaS and help desk technical subscription services, as well as non-contracted recurring content management services, were $7,907 in the six months ended June 30, 2023 as compared to $6,535 in the same period in 2022, driven by expansion in the Company's SaaS revenue and the inclusion of Reflect revenue for a full six months in the current year as compared to approximately four and one half months during the six months ended June 30, 2022 as a result of the Merger closing on February 17, 2022.

Hardware revenues were $12,606 for the nine month period ended September 30, 2023 as compared to $17,141 for the nine month period ended September 30, 2022, a decrease of $4,535, or 26%, with prior year results driven by  two customers executing cyclical refreshes of their digital infrastructure throughout their entire geographic footprint.

Hardware revenues generated in the current year were driven by new standard existing customer expansion activities and supplemented by new customer deployments, with no existing customers executing a similar large scale refresh during the nine months ended September 30, 2023. Those refresh activities represented $8,919 in incremental hardware revenue during the nine months ended September 30, 2022.

Services and other revenues were $18,102 for the nine month period ended September 30, 2023, an increase of $2,383, or 15%, driven by growth in managed services revenue. Managed services revenue, which includes both SaaS and help desk technical subscription services, as well as non-contracted recurring content management services, were $12,227 in the nine months ended September 30, 2023 as compared to $10,435 in the same period in 2022, driven by expansion in the Company's SaaS license counts, which drive annual recurring revenue on a per device per month basis, and the inclusion of Reflect revenue for a full nine months in the current year as compared to approximately seven and one half months during the nine months ended September 30, 2022 as a result of the Merger closing on February 17, 2022.

This represents a year-over-year growth rate of 17% in our higher margin, primarily subscription-based, managed services revenue.

Gross profit increased by $833, or 10% during the six months ended June 30, 2023 as compared to the same period in 2022 driven by improvements in hardware gross margins as a result of a significant deployment with gross margin of approximately 25%.

Gross profit margin increased to 49% during the six months ended June 30, 2023, from 39% in the same period in 2022 driven by (1) favorable revenue mix as managed services revenue, which includes higher margin SaaS and other services revenues, increased to 41% of total revenue for the six months ended June 30, 2023 as compared to 30% of total revenues in the six months ended June 30, 2022 and (2) margin expansion in hardware partially offset by reduced revenue in the current year.

Gross profit increased by $1,622, or 12% during the nine months ended September 30, 2023 as compared to the same period in 2022 driven by improvements in hardware gross margins as a result of a significant deployment with gross margin of approximately 25%.

Gross profit margin increased to 48% during the nine months ended September 30, 2023, from 40% in the same period in 2022 driven by (1) increased gross margin on hardware sales, partially offset by a reduction in total hardware sales, and (2) an increase in services revenue driven by expansion in SaaS license counts and associated subscription license revenue.

Sales and Marketing Expenses

5 unchanged sentences

Through completion of the Merger, the Company also acquired a media sales business unit that serves to monetize customer networks via the direct sale of advertising to be displayed on digital advertising networks owned by those customers.

This business utilizes internal and third party sales agents - the salaries and commissions of which are included within Sales and Marketing Expense within the Condensed Consolidated Statement of Operations. We expect the sales and marketing expenses of the Company for the six months ended June 30, 2023 to adequately reflect the normal spend in these areas in future reporting periods.

This business utilizes internal and third party sales agents - the salaries and commissions of which are included within Sales and Marketing Expense within the Condensed Consolidated Statement of Operations. We expect the sales and marketing expenses of the Company for the nine months ended September 30, 2023 to adequately reflect the normal spend in these areas in future reporting periods.

Research and Development Expenses

The Company capitalizes certain of these expenses and amortizes those costs through the Condensed Consolidated Statement of Operations on a straight-line basis over the economic useful life of the software feature or functionality. Research and development expenses increased by $84, or 13%, for the six month period ended June 30, 2023 as compared to the same period in 2022 driven primarily by incremental headcount added via completion of the Merger on February 17, 2022.

The Company capitalizes certain of these expenses and amortizes those costs through the Condensed Consolidated Statement of Operations on a straight-line basis over the economic useful life of the software feature or functionality. Research and development expenses increased by $239, or 27%, for the nine month period ended September 30, 2023 as compared to the same period in 2022 driven primarily by incremental headcount added via completion of the Merger on February 17, 2022.

We integrated the development teams which has enhanced speed to market on new feature and functionality development activities.

We expect a continued elevated level of expenditure and capitalized activity through the third quarter of 2023 associated with a customer-facing opportunity, followed by a return to spending levels consistent with the Company’s results for the second quarter of 2022, which adequately reflect the pace for spend in these areas in future reporting periods.

General and Administrative Expenses

General and administrative expenses were effectively flat, increasing $71, or 1%. As compared to the six months ended June 30, 2022, the Company experienced decreases of (1) $456 in stock compensation expense as outstanding performance awards were fully expensed as of December 31, 2022, and (2) reductions in certain expenses following completion of integration activities/projects completed during 2022 following the Reflect Merger (including but not limited to consolidation of CMS tools, cloud hosting environments, IT tools) that materialized through the balance of 2022.

These decreases were partially offset by increases of (1) $313 in increased personnel costs as the Company scaled up operations in response to an increase in customer acquisitions, (2) $133 in legal expenses associated with the Company's establishment of a Special Committee of the Board of Directors to consider and respond to an unsolicited proposal of a Company shareholder to acquire certain outstanding shares of common stock of the Company, as well as settlement of two open litigation matters during the period, and (3) other operating costs, each primarily associated with the consolidation of Reflect for six months in 2023, as compared to reporting consolidation of Reflect for only 134 days during the six months ended June 30, 2022 as a result of completion of the Reflect Merger on February 17, 2022.

General and administrative expenses were effectively flat, decreasing $144, or 2%. As compared to the nine months ended September 30, 2022, the Company experienced decreases of (1) $949 in stock compensation expense as outstanding performance awards were fully expensed as of December 31, 2022, and (2) reductions in certain expenses following completion of integration activities/projects completed during 2022 following the Reflect Merger (including but not limited to consolidation of CMS tools, cloud hosting environments, IT tools) that materialized through the balance of 2022.

These decreases were partially offset by increases of (1) $594 in increased personnel costs as the Company scaled up operations in response to an increase in customer acquisitions, (2) $196 in legal expenses associated with the Company's establishment of a Special Committee of the Board of Directors to consider and respond to an unsolicited proposal of a Company shareholder to acquire certain outstanding shares of common stock of the Company, as well as settlement of two open litigation matters during the period, and (3) other operating costs, each primarily associated with the consolidation of Reflect for nine months in 2023, as compared to reporting consolidation of Reflect for only 226 days during the nine months ended September 30, 2022 as a result of completion of the Reflect Merger on February 17, 2022.

Depreciation and amortization expenses

Depreciation and amortization expenses increased $401, or 34%, in the six months ended June 30, 2023 compared to the same period in 2022, driven primarily by incremental amortization expense generated from the addition of $17,160 in amortizing intangible assets on February 17, 2022, as a result of the Merger.

Depreciation and amortization expenses increased $333, or 16%, in the nine months ended September 30, 2023 compared to the same period in 2022, driven primarily by incremental amortization expense generated from the addition of $17,160 in amortizing intangible assets on February 17, 2022, as a result of the Merger.

Interest expense

2 unchanged sentences

Loss on warrant amendment

During the six month period ended June 30, 2022, the Company recorded a gain of $7,902 as the result of assessing the fair value of warrant liabilities associated with the Company’s issuance of warrants in its debt and equity offerings completed in February 2022 to finance the Merger.

During the nine month period ended September 30, 2022, the Company recorded a gain of $7,902 as the result of assessing the fair value of warrant liabilities associated with the Company’s issuance of warrants in its debt and equity offerings completed in February 2022 to finance the Merger.

These warrants were initially assessed at fair value through Black Scholes calculation, with changes in fair value recognized at each period end.

7 unchanged sentences

Loss on debt waiver consent

During the six months ended June 30, 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 Company's credit agreement with Slipstream, the Company paid consideration to such investor in the form of the Purchaser Warrant to purchase 466,667 shares of Company common stock in an at-the-market offering under Nasdaq rules.

During the nine months ended September 30, 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 Company's credit agreement with Slipstream, the Company paid consideration to such investor in the form of 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 was equal to the waiver fee ($175) divided by $0.375 per share.

2 unchanged sentences

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 Condensed Consolidated Statement of Operations associated with the issuance of the Purchaser Warrant of $1,212 for the six months ended June 30, 20222.

No such transactions occurred in the current period.

Loss on extinguishment of debt

During the six months ended June 30, 2022, the Company refinanced its debt facilities with Slipstream.

During the nine months ended September 30, 2022, the Company refinanced its debt facilities with Slipstream.

5 unchanged sentences

Quarters ended

GAAP net income (loss)

GAAP net loss

Interest expense:

5 unchanged sentences

Depreciation of property & equipment

Income tax expense/(benefit)

Gain on fair value of warrant liability

Income tax (benefit) expense

Gain on settlement of obligations

Loss on warrant amendment

(Gain)/loss on fair value of equity guarantee

Loss (Gain) on fair value of equity guarantee

Disposal of Safe Space Solutions inventory

Deal and transaction expenses

Other (income)/expense

Other expense (income)

Stock-based compensation –

4 unchanged sentences

Operating Activities

The net cash provided by operating activities during the six months ended June 30, 2023 was $6,344 compared to net cash used in operating activities of $63 for the same period in 2022. Cash provided by operating activities in the six month period ending June 30, 2023, was driven by a reduction in accounts receivable, inventory and prepaid assets of $1,458, $1,119 and $1,035, respectively. 

The net cash provided by operating activities during the nine months ended September 30, 2023 was $8,306 compared to net cash used in operating activities of $1,050 for the same period in 2022. Cash provided by operating activities in the nine month period ending September 30, 2023, was driven by a reduction in accounts receivable and prepaid assets of $2,080 and $859, respectively. 

In addition, deferred revenue and customer deposits increased $2,284 and $1,054 respectively.

Investing Activities

Net cash used in investing activities during the six months ended June 30, 2023 was $2,203 compared to $19,546 during the same period in 2022.

Net cash used in investing activities during the nine months ended September 30, 2023 was $3,138 compared to $20,268 during the same period in 2022.

The use of cash in the prior year was driven by completion of the Merger.

We currently do not have any material commitments for capital expenditures as of June 30, 2023;

however, we anticipate continued elevated capital expenditures in excess of historical trends through third quarter of 2023 as we complete the modernization and internationalization of our automotive platform in an effort to capture incremental SaaS-based revenue contracts.

We currently do not have any material commitments for capital expenditures as of September 30, 2023;

however, we anticipate a reduction in capital expenditures entering 2024 as we complete the modernization and internationalization of our automotive platform in 2023 in an effort to capture incremental SaaS-based revenue contracts.

Financing Activities

Net cash used in financing activities during the six months ended June 30, 2023 was $2,510 compared to net cash provided by financing activities of $19,566 for the same period in 2022.

Net cash provided by financing activities during the nine months ended September 30, 2023 was $1,575 compared to net cash provided by financing activities of $19,254 for the same period in 2022.

The change is the result of the Company’s completion of equity and debt financing in the first quarter of 2022 to facilitate the Merger, which provided net cash of $10,109 and $9,868, respectively. 

Net cash used in financing activities during the six month period ended June 30, 2023, primarily represents repayments made on the Secured Promissory Note and Term Loan (2022) of $623 and $1,881, respectively. 

Net cash provided by financing activities during the nine month period ended September 30, 2023, is primarily the result of a common stock offering completed in August 2023, generating cash of $5,454, net of offering expenses, partially offset by repayments made on the Consolidation Term Loan, Secured Promissory Note and Term Loan (2022) of $930, $935 and $2,000, respectively. 

Off-Balance Sheet Arrangements

During the three and six months ended June 30, 2023, we did not engage in any off-balance sheet arrangements set forth in Item 303(a)(4) of Regulation S-K.

During the three and nine months ended September 30, 2023, we did not engage in any off-balance sheet arrangements set forth in Item 303(a)(4) of Regulation S-K.

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

What changed 10-Q

Item 1. Financial Statements