What changed in this filing

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Item 5. Market for Registrant’s Common Equity

2024-03-21 compared with 2023-03-30 · 140 added, 188 removed, 164 unchanged (67% of the section changed)

ITEM 5 MARKET FOR REGISTRANT ’

S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

ITEM 5 MARKET FOR REGISTRANT ’ S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

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

Market Information

Our common stock is listed for trading on the Nasdaq Capital Markets (“Nasdaq”) under the symbol “CREX”.

The transfer agent and registrar for our common stock is Computershare Limited, 401 2nd Avenue North, Minneapolis, Minnesota 55401. 

Our common stock is listed for trading on the Nasdaq Capital Market under the symbol “CREX”.

The transfer agent and registrar for our common stock is Computershare Limited, 401 2nd Avenue North, Minneapolis, Minnesota 55401.

As of March 20, 2024, we had 378 holders of record of our common stock.

The actual number of stockholders is greater than this number of record holders, and includes stockholders who are beneficial owners, but whose shares are held in street name by brokers and other nominees.

This number of holders of record also does not include stockholders whose shares may be held in trust by other entities.

Dividend Policy

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Any payment of cash dividends in the future will be at the discretion of our Board of Directors and will depend upon our results of operations, earnings, capital requirements, contractual restrictions, and other factors deemed relevant by our Board of Directors.

Holders of our common stock are entitled to share pro rata in dividends and distributions with respect to the common stock when, as and if declared by our Board of Directors out of funds legally available therefor.

Our future dividend policy is subject to the sole discretion of our Board of Directors and will depend upon a number of factors, including future earnings, capital requirements and our financial condition.

Recent Sales of Unregistered Securities

Securities Authorized for Issuance Under Equity Compensation Plans

Information about our equity compensation plans is set forth in Item 12 of Part III of this Annual Report, which is incorporated herein by reference.

Information about our equity compensation plans is set forth in Item 12 of Part III of this Report, which is incorporated herein by reference.

ITEM 6 [RESERVED]

Not applicable.

ITEM 7 MANAGEMENT ’

S DISCUSSION AND ANALYSIS  

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

The following discussion should be read in conjunction with the financial statements and related for the years ended December 31, 2022 and 2021, which are included elsewhere in this Annual Report on Form 10-K.

This Management ’

s Discussion and Analysis of Financial Condition and Results of Operations contains statements that are forward-looking.

ITEM 7 MANAGEMENT ’ S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

The following discussion should be read in conjunction with the financial statements and related notes for the years ended December 31, 2023 and 2022, which are included elsewhere in this Report.

This Management’s Discussion and Analysis of Financial Condition and Results of Operations contains statements that are forward-looking.

These statements are based on current expectations and assumptions that are subject to risk, uncertainties and other factors.

These statements are often identified by the use of words such as “

may, ”

will, ”

expect, ”

believe, ”

anticipate, ”

intend, ”

could, ”

estimate, ”

continue, ”

and similar expressions or variations.

These statements are often identified by the use of words such as “may,” “will,” “expect,” “believe,” “anticipate,” “intend,” “could,” “estimate,” or “continue,” and similar expressions or variations.

You should review the " Cautionary Note Regarding Forward-Looking Statements;

Risk Factor Summary", and "Risk Factors" sections of this Annual Report on Form 10-K for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements described in the following discussion and analysis.

Creative Realities, Inc.

(“Creative Realities”, or the “Company”) transforms environments through digital solutions by providing innovative digital signage solutions for key market segments and use cases, including:

Risk Factor Summary ", and " Risk Factors " sections of this Report for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements described in the following discussion and analysis.

The Company transforms environments through digital solutions by providing innovative digital signage solutions for key market segments and use cases, including:

Entertainment and Sports Venues

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

Restaurants, including QSRs

Convenience Stores

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Corporate Communications, Employee Experience

Digital out of Home (DOOH) Advertising Networks

DOOH Advertising Networks

We serve market-leading companies, so there is a good chance that if you leave your home today to shop, work, eat or play, you will encounter one or more of our digital signage experiences.

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Increased customer/guest engagement.

Improved patient outcomes

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

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

Through a combination of organically grown platforms and a series of strategic acquisitions, including our acquisition of Reflect in February 2022, the Company assists customers to design, deploy, manage, and monetize their digital signage networks.

The Company sources leads and opportunities for its solutions through its digital and content marketing initiatives, close relationships with key industry partners, specifically equipment manufacturers, and the direct efforts of its in-house industry sales experts.

Client engagements focus on consultative conversations that ensure the Company’s solutions are positioned to help clients achieve their business objectives in the most cost-effective manner possible.

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

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

We leverage a ‘single vendor’

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

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

Customer engagements focus on consultative conversations that ensure the Company’s solutions are positioned to help customers achieve their business objectives in the most cost-effective manner possible.

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

Breadth of solutions – Creative Realities offers a wide breadth of solutions to our customers.

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

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

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

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

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

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

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

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

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

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

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

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

Network scalability and reliability – Our SaaS content management platforms power some of the largest and most complex digital signage networks in North America, evidencing our ability to manage enterprise scale projects.

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

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

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

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

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

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

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

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

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

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

Media sales – Few digital signage solution providers offer their customers media sales as a service.

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

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

Market sector expertise – Creative Realities has in-house experts in key market segments such as automotive, retail, QSRs, convenience stores, and DOOH advertising.

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

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

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

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

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

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

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

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

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

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

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

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

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

We simplify and improve end user support by leveraging our own NOC in Louisville, Kentucky.

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

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

We believe that interactive applications and integrations with other data sources will dominate the future.

From social media feeds, mobile integrations, corporate data stores, or POS systems, our proven ability to build scalable applications and integrations is a key advantage that customers can leverage to deliver more compelling and engaging experiences for their customers.

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

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

Our Sources of Revenue

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Post-deployment network and field support

Media sales, as a result of our acquisition of Reflect

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

These include:

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

Our platforms:

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

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

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

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

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

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

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

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Recent Developments

Public Offering

On August 17, 2023, the Company conducted a 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.

Reverse stock split

On March 23, 2023, the Company filed Articles of Amendment with the Secretary of State of the State of Minnesota to effectuate, effective March 27, 2023, a one-for-three stock split of the shares of the Company's common stock, par value $0.01 per share.

As a result of the reverse stock split, effective 12:01 am on March 27, 2023, every three shares of common stock then-issued and outstanding automatically combined into one share of common stock, with no change in par value per share. 

No fractional shares were outstanding following the reverse stock split and any fractional shares resulting from the reverse split were rounded up to the nearest whole share of common stock. 

On March 23, 2023, the Company filed Articles of Amendment with the Secretary of State of the State of Minnesota to effectuate, effective March 27, 2023, a 1-for-3 stock split of the shares of the Company's common stock, par value $0.01 per share.

No fractional shares were outstanding following the reverse stock split and any fractional shares resulting from the reverse split were rounded up to the nearest whole share of common stock.

In connection with the reverse stock split, the total number of shares of common stock authorized for issuance was reduced from 200,000,000 shares to 66,666,666 shares in proportion to the reverse stock split.

Effective as of the same time as the reverse stock split, the number of shares of common stock available for issuance under the Company's equity compensation plans were reduced in proportion to the reverse stock split. 

The reverse stock split also resulted in the number of shares of shares of common stock issuable upon exercise of outstanding warrants, or the exercise or vesting of equity awards, in proportion to the reverse stock split and caused a proportionate increase in exercise price or share-based performance criteria, where applicable.

Rejection of unsolicited offer

On February 2, 2023, we received an unsolicited proposal from Pegasus Capital Advisors, L.P., on behalf of itself and certain of its affiliates, including Slipstream (collectively, “Pegasus”), to acquire all of the outstanding shares of common stock of the Company that are not owned by Pegasus for a purchase price of $0.83 per share (or, as a result of our recent reverse stock split, $2.49 per share) in cash. Pegasus is the beneficial owner of our common stock owned of record by Slipstream.

The Special Committee of the Company’s Board of Directors (the “Special Committee”) has concluded that such proposal undervalues the Company based on the Special Committee’s views of the intrinsic value of the Company’s existing business and current and future prospects, and is not in the best interests of the Company’s existing shareholders.

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

Pegasus may or may not determine to revise its proposal.

The Special Committee remains available to evaluate and respond to a revised proposal by Pegasus.

There can be no assurance that any revised proposal or definitive offer will be made or accepted, that any agreement will be executed, or that any transaction will be consummated.

Please see Note 8 Loans Payable , 

Note 10 

Business Combinations , Note 12 Warrants , and Note 13 Stock-based Compensation to the Company’s Consolidated Financial Statements contained in this Report for a description of other recent developments of the Company that occurred during, and subsequent to, the year ended December 31, 2022.

The reverse stock split also resulted in the number of shares of shares of common stock issuable upon exercise of outstanding warrants, or the exercise or vesting of equity awards, in proportion to the reverse stock split and caused a proportionate increase in exercise price or share-based performance criteria, where applicable.

Rejection of unsolicited offers

On February 2, 2023 and May 1, 2023, we received unsolicited proposals from Pegasus, to acquire all of the outstanding shares of common stock of the Company that are not owned by Pegasus for purchase prices of $0.83 per share in cash (or, as a result of our 1-for-3 reverse stock split effectuated in March 2023, $2.49 per share), and $2.85 per share in cash, respectively.

Pegasus is the beneficial owner of our common stock owned of record by Slipstream.

The Special Committee concluded that each proposal undervalued the Company based on the Special Committee’s views of the intrinsic value of the Company’s existing business and current and future prospects, and was not in the best interests of the Company’s existing shareholders.

Consequently, the Special Committee advised Pegasus that it rejected each proposal, and since such time, Pegasus has not made any subsequent acquisition proposal.

Please see Note 5 Business Combinations , Note 8 Loans Payable , Note 11 Warrants , and Note 12 Stock-based Compensation to the Company’s Consolidated Financial Statements contained in this Report for a description of other recent developments of the Company that occurred during, and subsequent to, the year ended December 31, 2023.

Critical Accounting Policies and Estimates

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Our management believes these policies are reasonable and appropriate.

The Company’s significant accounting policies are described in Note 2 Summary of Significant Accounting Policies  of the Company’s Consolidated Financial Statements included within Part II, ITEM 8 of this Annual Report.

The Company’s significant accounting policies are described in Note 2 Summary of Significant Accounting Policies of the Company’s Consolidated Financial Statements included within Part II, ITEM 8 of this Report.

The following discussion identifies those accounting policies that we believe are critical in the preparation of our financial statements, the judgments and uncertainties affecting the application of those policies and the possibility that materially different amounts will be reported under different conditions or using different assumptions.

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

The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America (“GAAP”) requires that management make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of commitments and contingencies at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

Our actual results could differ from those estimates.

Revenue Recognition

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

Revenue from Contracts with Customers (“ASC 606”).

We recognized revenue in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers (“ASC 606”).

Under ASC 606, we account for revenue using the following steps:

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Recognize revenue when, or as, we satisfy our performance obligations.

See Note 2 Summary of Significant Accounting Policies  and Note 4 Revenue Recognition in our Consolidated Financial Statements, included in Part II, ITEM 8 of this Annual Report, for a complete discussion of our revenue recognition policies.

Allowance for Doubtful Accounts

We have not made any material changes in the accounting methodology we use to measure the estimated liability for doubtful accounts during the past two fiscal years.

The Company’s methodology for calculating the allowance for doubtful accounts consists of (1) reserving for specific receivables which (a) are known to be facing serious financial problems, (b) have a trade dispute with the Company, or (c) are significantly aged and/or unresponsive, and (2) a general reserve for unaged accounts receivable based on a percentage of revenue each period.

We do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we use to establish the liability for doubtful accounts.

However, if actual results are not consistent with our estimates or assumptions, we may be exposed to losses or gains that could be material.

See Note 2 Summary of Significant Accounting Policies and Note 4 Revenue Recognition in our Consolidated Financial Statements, included in Part II, ITEM 8 of this Report, for a complete discussion of our revenue recognition policies.

Goodwill is evaluated for impairment annually as of September 30 and whenever events or circumstances make it more likely than not that impairment may have occurred.

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The fair value of the reporting unit is determined by 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.

We use these same expectations in other valuation models throughout the business.

In addition to the discounted cash flow analysis, we utilize a leveraged buy-out model, trading comps and market capitalization to ultimately determine an estimated fair value of our reporting unit based on weighted average calculations from these models.

We use these same expectations in other valuation models throughout our business.

In addition to the discounted cash flow analysis, we utilize a leveraged buy-out model, trading comparables and market capitalization to ultimately determine an estimated fair value of our reporting unit based on weighted average calculations from these models.

We base our fair value estimates on assumptions we believe to be reasonable but that are unpredictable and inherently uncertain.

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If this situation occurs, we perform the required detailed analysis to determine if there is impairment.

No impairment was recorded as a result of our annual assessment completed as of 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. 

There was no impairment during the year-ended December 31, 2022.   

No impairment was recorded as a result of our annual assessment completed as of September 30, 2023.

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

We do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we use to test for impairment losses on goodwill.

We believe the future estimates and assumptions used to test for impairment losses on goodwill are reasonable.

However, if actual results are not consistent with our estimates or assumptions, we may be exposed to an impairment charge that could be material.

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Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities.

These deferred taxes are measured by applying the provisions of tax laws in effect at the balance sheet date, including the impact of the Tax Cuts and Jobs Act (the “Tax Act”) enacted on December 22, 2017.

These deferred taxes are measured by applying the provisions of tax laws in effect at the balance sheet date, including the impact of the Tax Cuts and Jobs Act enacted on December 22, 2017 (the “Tax Act”).

We recognize in income the effect of a change in tax rates on deferred tax assets and liabilities in the period that includes the enactment date.

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Impact of Recently Issued Accounting Pronouncements

Refer to Note 3 Recently Issued Accounting Pronouncements in our Consolidated Financial Statements included in Part II, ITEM 8 of this Annual Report, for a full description of recent accounting pronouncements, including the expected dates of adoption and estimated effects on results of operations and financial condition, which is incorporated herein by reference.

Refer to Note 2 Summary of Significant Accounting Policies in our Consolidated Financial Statements included in Part II, ITEM 8 of this Report, for a full description of recent accounting pronouncements, including the expected dates of adoption and estimated effects on results of operations and financial condition, which is incorporated herein by reference.

Results of Operations

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Total operating expenses

Operating loss

Other income/(expenses):

Operating income (loss)

Other expense (income):

Interest expense

Change in fair value of contingent consideration

Change in fair value of warrant liability

Change in fair value of equity guarantee

Change in fair value of Convertible Loan

Loss on debt waiver consent

Loss on warrant amendment

Gain/(loss) on settlement of debt

Other expense

Total other income/(expense)

Net income before income taxes

Loss on settlement of debt

Other expense (income)

Total other expense (income)

Net (loss) income before income taxes

Income tax expense

Sales increased by $24,913, or 135%, in 2022 as compared to 2021 driven in part by the acquisition of Reflect Systems, Inc.

("Reflect") via merger (the "Merger") on February 17, 2022, and the Company's successful sales activities as a combined company post-Merger.

Hardware revenues were $19,895 in 2022, an increase of $10,445 or 111%, as compared to the prior year. 

The increase was driven by large scale LED deployments during the year by multiple customers and the acquisition of Reflect. 

Services and other revenues were $23,455 in 2022, an increase of $14,468, driven by the acquisition of Reflect and the Company's successful sales activities post-Merger. 

Managed services revenue, which includes both SaaS and help desk technical subscription services were $14,320 for the year ended December 31, 2022 as compared to $5,596 for the year ended December 31, 2021. 

The increase is driven by the addition of Reflect's SaaS subscription revenue in the current year. 

This represents a year-over-year growth rate of 156% in our higher margin, typically subscription-based, managed service revenue.  

Gross profit increased $9,382 to $17,739 in 2022 from $8,357 in 2021, or 112%, through a combination of a 135% increase in revenue offset partially by a 4.4% reduction in gross margin percentage. 

Gross margin decreased to 40.9% from 45.3% driven by (i) revenue mix during 2022 related to several material customer hardware rollouts in the year that had a lower gross profit margin than our software services and (ii) a $1,249 increase in our inventory reserve related to Safe Space Solutions.

We are no longer actively promoting the sale of our Safe Space Solutions or purchasing inventory to support such solutions. We expect the contraction in gross margin to be less severe as we move beyond 2022.

Net (loss) income

Sales increased by $1,816, or 4%.

Hardware revenues were $20,303, an increase of $408 or 2%.

While hardware revenues were effectively flat year over year, the composition in each year was substantially different, with the current year comprised of lower customer concentration (including no customer greater than 19% of hardware revenues) and an increasing number of customers making consistent, repeated purchases of similar solutions on a regular cadence.

The prior year included a single customer that represented 43% of hardware revenues..

Services and other revenues were $24,863, an increase of $1,408 or 6%, driven by managed services revenue.

Managed services revenue, which includes both SaaS and help desk technical subscription services increased to $15,916 from $14,320.

The increase is driven by increasing software subscription revenue, with the annual recurring run rate of our subscription license revenue growing from $14,826 as of December 31, 2022 to $16,336 as of December 31, 2023.

This represents a year-over-year growth rate of approximately 11% in our higher margin, typically subscription-based, managed service revenue.

Gross profit increased $4,444 to $22,183 from $17,739, or 25%, through a combination of a 4% increase in revenue and an 8% increase in gross margin percentage.

Gross margin increased to 49% from 41% driven by expanding margins in our services revenue and entry into a material, long-term media sales contract for which revenue is recognized on a net basis in the current year.

Sales and Marketing Expenses

Sales and marketing expenses generally include the salaries, taxes, and benefits of our sales and marketing personnel, as well as trade show activities, travel, and other related sales and marketing costs.

Sales and marketing expenses increased by $2,498, or 217%, for the year ended December 31, 2022 as compared to the same period in 2021 driven primarily by (i) the inclusion in the prior year of a benefit of $232 related Employee Retention Credits (“ERC”) related to the retention and payment of salaries to sales personnel throughout 2020 and the nine months ended September 30, 2021, (ii) the acquisition of Reflect via the Merger on February 17, 2022, and (iii) the Company’s enhanced investments into sales and marketing activities post-COVID-19 pandemic.

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

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

particularly with respect to lead generation and brand marketing –

that the Company believes were undercapitalized historically by the Company.

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

As a result, we expect the sales and marketing expenses of the Company for the year ended December 31, 2022 to adequately reflect the pace for spend in these areas in future reporting periods.

Sales and marketing expenses increased by $1,596, or 44%, driven primarily by the Company’s enhanced investments into sales and marketing activities.

Following our acquisition of Reflect via merger (the "Merger"), the Company adopted certain tools, technology, and processes – particularly with respect to lead generation and brand marketing – that were historically undercapitalized by the Company and have since accelerated new customer acquisition.

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 Consolidated Statement of Operations.

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.

Research and development expenses increased by $701, or 127%, for the year ended December 31, 2022 as compared to the same period in 2021 driven primarily by (i) the inclusion in the prior year of a benefit of $196 related ERC, and (ii) the acquisition of Reflect via the Merger on February 17, 2022.

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

We have integrated the pre-existing CRI development team with the acquired team and have experienced enhanced speed to market on new feature and functionality development activities from increasing this resource pool.

We expect this elevated level of expense during the year ended December 31, 2022 to continue into the future as we develop our current and future product set.

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

The Company capitalizes certain of these expenses and amortizes those costs through the 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 $323, or 26%, 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 year.

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 increased $4,571, or 62%, driven primarily by (i) the inclusion in the prior year of a benefit of $694 related ERC, (ii) a prior period cash recovery of $555 related to a customer bankruptcy for which the Company previously recorded a reserve, and (iii) increased headcount and operations as a result of the acquisition of Reflect on February 17, 2022.

While the Company anticipates carrying higher general and administrative expenses moving forward as a result of the acquisition and subsequent expansion in organic revenues, the Company continues to execute integration activities (including but not limited to consolidation of CMS tools, cloud hosting environments, IT tools, and rightsizing leases for office space) that we expect will be realized by the end of 2022 and into 2023.

General and administrative expenses decreased $1,097, or 9% driven by a decrease of $1,553 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 by $1,469, or 108%, in 2022 compared to 2021.

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

Depreciation was consistent in both periods. 

Depreciation and amortization expenses increased by $388, or 14%.

This was driven by a full year of amortization on the $17,160 in amortizing intangible assets acquired as a result of the Merger.

Depreciation was consistent in both periods.

Interest Expense

See Note 8 Loans Payable to the 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 year ended December 31, 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.

Change in Fair Value of Equity Guarantee

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

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

Change in Fair Value of Contingent Consideration

The Company has a contingent consideration arrangement 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 date.

Change in fair value of Convertible Loan

The Company updated its fair value analysis of the Convertible Loan, resulting in a change in fair value of the Convertible Loan of $166, recognized during the year ended December 31, 2021.

Changes in Fair Value of Warrant Liability;

Loss on Warrant Amendment

These warrants were initially assessed at fair value through Black Scholes calculation, with changes in fair value recognized at each period end.See Note 11 Warrants to the Consolidated Financial Statements for a discussion of the Company's warrant activity.

Loss on Debt Waiver

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 Company's credit agreement with Slipstream Communications, 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.

During 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 a purchaser warrant to purchase 466,667 shares of Company common stock (the “Purchaser Warrant”).

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.

The exercise price of the Purchaser Warrant is $4.23 per share, and the Purchaser Warrant became exercisable on August 17, 2022.

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

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

The exercise price of the Purchaser Warrant is $4.23 per share, and the Purchaser Warrant became exercisable on August 17, 2022.

The Purchaser Warrant expires on February 17, 2028.

On 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 Statement of Operations associated with the issuance of the Purchaser Warrant of $1,212.

No such transactions occurred in the current year.

Loss on Warrant Amendment

Effective June 30, 2022, the Company amended the terms of certain of its outstanding warrants.

The amendments to such warrants removed the holder’s option to determine the value of such warrants utilizing the volume weighted average price (“VWAP”) of the Company’s common stock on the trading day immediately preceding the date of a notice in a cashless exercise, and removed the condition to exercising such warrants that the Company’s shareholders approve the exercise thereof (which had already been obtained).

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

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

Gain/Loss on Settlement of Obligations

On February 17, 2022, the Company refinanced its debt facilities with Slipstream.

The Company assessed the combination of the pre-existing senior secured term loan and secured convertible loan in accordance with ASC 470 

Debt  and determined the transaction should be accounted for as an extinguishment, in part as the Consolidation Term Loan eliminated a substantive conversion feature.

Loss on Settlement of Obligations

On February 17, 2022, the Company refinanced its debt facilities with Slipstream.

The Company assessed the combination of the pre-existing senior secured term loan and secured convertible loan in accordance with ASC 470 Debt and determined the transaction should be accounted for as an extinguishment of debt, in part as the Consolidation Term Loan eliminated a substantive conversion feature.

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

On January 11, 2021, the Company received a notice from Old National Bank regarding forgiveness of the loan in the principal amount of $1,552 (the “PPP Loan”) that was made pursuant to the Small Business Administration Paycheck Protection Program under the Coronavirus Aid, Relief and Economic Security Act of 2020.

According to such notice, the full principal amount of the PPP Loan and the accrued interest have been forgiven, resulting in a gain of $1,552 during the year ended December 31, 2021.

On May 13, 2021, the Company and seller of Allure (“Seller”) entered into a settlement agreement wherein neither party admitted liability, and the Company agreed to pay, and Seller agreed to accept, $100 as settlement in full for the outstanding balance of principal and accrued interest under the Seller Note and a mutual release of all claims related to the Seller Note and Allure sale transaction under the Purchase Agreement and all related agreements.

As a result of this settlement, the full principal amount of the Seller Note and the accrued interest have been eliminated, resulting in a gain in the Consolidated Financial Statements of $1,624, representing $1,538 related to the Seller Note and $86 of related interest thereon, during the year ended December 31, 2021.

Supplemental Operating Results on a Non-GAAP Basis

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Our management believes that this non-GAAP financial measure is useful information for investors, shareholders and other stakeholders of our Company in gauging our results of operations on an ongoing basis.

We believe that EBITDA is a performance measure and not a liquidity measure, and therefore a reconciliation between net loss/income, a GAAP financial measure, and EBITDA and Adjusted EBITDA has been provided.

We believe that earnings before interest, depreciation, and amortization (“EBITDA”) is a performance measure and not a liquidity measure, and therefore a reconciliation between net (loss) income, a GAAP financial measure, and EBITDA and Adjusted EBITDA has been provided.

EBITDA should not be considered as an alternative to net (loss) income as an indicator of performance or as an alternative to cash flows from operating activities as an indicator of cash flows, in each case as determined in accordance with GAAP, or as a measure of liquidity.

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We do not intend the presentation of these non-GAAP measures to be considered in isolation or as a substitute for results prepared in accordance with GAAP.

These non-GAAP measures should be read only in conjunction with our Consolidated Financial Statements prepared in accordance with GAAP that are included elsewhere in this Annual Report.

These non-GAAP measures should be read only in conjunction with our Consolidated Financial Statements prepared in accordance with GAAP that are included elsewhere in this Report.

Quarters Ended

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Quarters ended

GAAP net income (loss)

GAAP net (loss) income

Interest expense:

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Income tax expense (benefit)

Gain on fair value of warrant liability

(Gain)/loss on settlement of obligations

Loss on debt waiver consent

Loss on warrant amendment

(Gain)/loss on fair value of equity guarantee

Disposal of Safe Space Solutions inventory

Deal and transaction costs

Stock-based compensation –

Director grants

Loss (Gain) on fair value of contingent consideration

Stock-based compensation – Director grants

Other expense (income)

Adjusted EBITDA

8 unchanged sentences

Amortization of intangible assets

Amortization of finance lease assets

Amortization of employee share-based awards

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Income tax expense (benefit)

Change in fair value of Special Loan

Gain on settlement of obligations

Gain on fair value of warrant liability

Loss (gain) on settlement of obligations

Loss on debt waiver consent

Loss on warrant amendment

(Gain) loss on fair value of contingent consideration

Disposal of Safe Space Solutions inventory

Deal and transaction costs

Stock-based compensation –

Director grants

Stock-based compensation – Director grants

Adjusted EBITDA

Liquidity and Capital Resources

See Note 1 

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

See Note 1 Nature of Organization and Operations to the accompanying Consolidated Financial Statements for a detailed discussion of liquidity and financial resources.

Operating Activities

The cash flows (used in) / provided by operating activities were $(708) and $471 for the years ended December 31, 2022 and 2021, respectively. 

We produced net income of $1,876. 

Following the Merger, our revenues have significantly expanded, particularly with respect to managed services revenue. 

Other than net income, cash provided by operating activities was driven by an expansion of accounts receivable and inventory of $3,927 and $1,472, partially offset by growth of $914 of accounts payable and $1,112 of accrued expenses, respectively. 

The cash flows provided by (used in) operating activities were $5,167 and $(708) for the years ended December 31, 2023 and 2022, respectively.

The Company generated a net loss of $2,937, which included depreciation and amortization expense (inclusive of amortization of debt discount) of $4,664 and a loss on the change in fair value of contingent consideration of $1,419.

The Company generated a $1,261 increase in cash provided by changes in operating assets and liabilities, primarily due to increases in accounts payable, and customer deposits, a decrease in prepaid expenses and other current assets, partially offset by an increase to accounts receivable.

Investing Activities

Net cash used in investing activities during the year ended December 31, 2023 was $4,027 as compared to $21,475 for the same period in 2022.

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

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 December 31, 2023;

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

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

Financing Activities

Net cash provided by financing activities during the years ended December 31, 2022 and 2021 was $20,933 and $1,745, respectively.

The current year results were primarily driven by completion of the Company’s Equity Financing and Debt Financing (each as described in Note 10 Business Combinations to the accompanying Consolidated Financial Statements) in the period to facilitate the Merger, which provided net cash of $10,109 and $9,868, respectively. 

The Company also executed a $2,000 term note ("Term Note (2022)") with Slipstream (as described in Note 8 Loans Payable  to the accompanying Consolidated Financial Statements). 

Cash provided by financing activities were reduced by $1,044 as a result of repayments of principal on the Secured Promissory Note (as described in Note 8 Loans Payable to the accompanying Consolidated Financial Statements). 

Net cash provided by financing activities during the year ended December 31, 2023 was $137 compared to net cash provided by financing activities of $20,933 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 provided by financing activities during the year ended December 31, 2023, is primarily the result of a common stock offering completed in August 2023, generating cash of $5,454, net of offering expenses, offset by repayments made on the Consolidation Term Loan, Term Loan (2022), and Secured Promissory Note of $2,040, $2,000 and $1,254, respectively.

Off-Balance Sheet Arrangements

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

During the year ended December 31, 2023, we did not engage in any off-balance sheet arrangements set forth in Item 303(a) (4) of Regulation S-K.

ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

What changed 10-K

Item 5. Market for Registrant’s Common Equity