What changed in this filing

/stocks — the workspaceLOADING

Item 9A. Controls and Procedures

2024-03-21 compared with 2023-03-30 · 697 added, 858 removed, 502 unchanged (76% of the section changed)

1 unchanged sentence

Evaluation of Disclosure Controls and Procedures

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

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

Management ’

s Annual Report on Internal Control Over Financial Reporting  

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

Based on that evaluation, our management, including our Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures were effective as of December 31, 2023, and designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Management ’ s Annual Report on Internal Control Over Financial Reporting

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

2 unchanged sentences

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

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

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

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of our internal control over financial reporting as of December 31, 2023 based on the framework in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Based on our assessment and those criteria, management believes that we maintained effective internal control over financial reporting as of December 31, 2023.

Changes in Internal Control over Financial Reporting

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

There were no changes in our internal control over financial reporting that occurred during the year ended December 31, 2023, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B OTHER INFORMATION

Rule 10b5 - 1 Trading Plans

During the quarter ended December 31, 2023, none of the officers (as defined in Exchange Act Rule 16a - 1 (f)) or directors of the Company adopted or terminated a “Rule 10b5 - 1 trading arrangement,” (as defined in Item 408 (a) of Regulation S-K) intended to satisfy the affirmative defense conditions of Exchange Act Rule 10b5 - 1 (c) or any non-Rule 10b5 - 1 trading arrangement.

Earnings Release

On March 21, 2024, the Company issued a press release announcing its financial condition and results of operations for the three months and year ended December 31, 2023.

A copy of the press release is furnished as Exhibit 99.1 and is incorporated by reference into this Item 9B in lieu of separately furnishing such press release under Item 2.02 of Form 8 -K.

This disclosure, including Exhibit 99.1 hereto, shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference into any of the Company’s filings under the Securities Act of 1933, as amended, or the Exchange Act, except as expressly set forth by specific reference in such filing.

DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS.

1 unchanged sentence

ITEM 10 DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

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

The information required by this Item is incorporated herein by reference to our definitive proxy statement for our 2024 Annual Meeting of Shareholders (the "Proxy Statement"), which will be filed with the SEC pursuant to Regulation 14A under the Exchange Act.

ITEM 11 EXECUTIVE COMPENSATION

8 unchanged sentences

Plans (excluding

Equity compensation plans approved by stockholders

Equity compensation plans not approved by stockholders

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

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

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

Equity compensation plans approved by shareholders

Equity compensation plans not approved by shareholders

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

The Company's ability to issue new awards under its 2014 Stock Incentive Plan expired in 2023.

On November 8, 2023, our Board of Directors adopted the 2023 Plan that authorizes the issuance of up to 1,500,000 shares under such plan.

The Company intends to seek shareholder approval of such plan at our 2024 annual shareholder meeting.

At this time, no awards have been issued under the 2023 Plan.

For information regarding the material features of each of the above plans see Note 12 Stock-based Compensation in our Consolidated Financial Statements included in this Report.

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

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

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

ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

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

ITEM 14 PRINCIPAL ACCOUNTANT FEES AND SERVICES

1 unchanged sentence

ITEM 15 EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

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

See “Exhibit Index” on page 38 .

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

See “Exhibit Index” on page 34 .

Not applicable.

EXHIBIT INDEX

Exhibit  

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

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

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

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

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

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

s Amendment No.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Exhibit  

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

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

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

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

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

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

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

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

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

Articles of Incorporation, as amended

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

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

Description of Securities

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Employment Agreement dated as of November 12, 2021 by and between the registrant and Will Logan (incorporated by reference to Exhibit 10.2 to the registrant’s Current Report on Form 8-K filed November 15, 2021)

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

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

Exhibit  

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

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

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

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

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

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

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

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

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

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

2023 Stock Incentive Plan (incorporated by reference to Exhibit 10.1 of the registrant's Quarterly Report on Form 10-Q filed November 9, 2023)

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

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

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

2 unchanged sentences

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

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

Placement Agency Agreement (incorporated by reference to Exhibit 10.1 of the registrant's Current Report on Form 8-K filed with the SEC on August 21, 2023

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

Insider Trader Policy

List of Subsidiaries

6 unchanged sentences

Section 1350.

Press Release dated March 21, 2024

Inline XBRL Instance Document.

7 unchanged sentences

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

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

Not applicable.

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

FORM 10-K SUMMARY .

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

March 21, 2024.

5 unchanged sentences

Chief Financial Officer

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

/s/ Richard Mills

In accordance with the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.

/s/ Richard Mills

Chief Executive Officer (Principal Executive Officer)

1 unchanged sentence

Richard Mills

/s/ Will Logan

and Chairman of the Board of Directors

/s/ Will Logan

Chief Financial Officer (Principal Financial and

1 unchanged sentence

Principal Accounting Officer)

/s/ Dennis McGill

Chairman of the Board of Directors

March 30, 2023

Dennis McGill

/s/ David Bell

/s/ David Bell

March 21, 2024

David Bell

/s/ Donald Harris

/s/ Donald Harris

March 21, 2024

Donald Harris

Donald Harris

/s/ Steve Nesbit

5 unchanged sentences

Consolidated Statements of Operations

Consolidated Statements of Shareholders’ Equity

Consolidated Statements of Shareholders’ Equity

Consolidated Statements of Cash Flows

4 unchanged sentences

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

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

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

and subsidiaries (the "Company") as of December 31, 2023 and 2022, the related consolidated statements of operations, shareholders' equity, and cash flows, for each of the two years in the period ended December 31, 2023, and the related notes to the financial statements (collectively referred to as the "financial statements").

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.

Going Concern

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern.

As discussed in Note 1 to the financial statements, the Company is experiencing difficulty in generating sufficient cash flow to service its debt and contingent consideration obligations, which raises substantial doubt about its ability to continue as a going concern.

Management's plans in regard to these matters are also described in Note 1.

The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

6 unchanged sentences

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

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

Accordingly, we express no such opinion.

6 unchanged sentences

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

Goodwill –

Refer to Notes 2 and 7 to the Financial Statements

Goodwill – Refer to Notes 2 and 7 to the Financial Statements

Critical Audit Matter Description

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

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

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

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

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

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

The market approach requires management to make assumptions regarding guideline public company transactions and estimated market multiples.

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

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

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

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

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

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

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

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

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

Accordingly, management performed an impairment assessment as of September 30, 2023.

The estimated fair value of the reporting unit exceeded the carrying value as of September 30, 2023 and, therefore, no impairment was recognized.

How the Critical Audit Matter Was Addressed in the Audit

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

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

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

Our audit procedures related to the significant estimates and assumptions included in the discounted cash flow model, including projected revenues, gross profit, EBITDA, working capital as a percentage of revenue, and capital expenditures, and the selection of the long-term growth rate and discount rate for the reporting unit included the following, among others:

We evaluated the design and implementation of management's controls around the valuation of the reporting unit and the selection and review of critical assumptions used in the discounted cash flow and market approaches.

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

historical revenue, gross profit, EBITDA, working capital as a percentage of revenue and capital expenditures;

internal communications to management and the Board of Directors, and;

forecasted information included in industry reports for the Company.

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

We evaluated management's historical contract win experience to assess whether forecasted revenues are reasonable.

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

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

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

We evaluated changes in forecasted information from the previous quantitative assessment to the annual assessment date and obtained supporting evidence for any significant changes in forecasted information.

With the assistance of our internal fair value specialists:

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

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

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

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

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

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

o We evaluated the selection of guideline public companies and selection of multiples utilized within the market approach.

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

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

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

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

/s/ Deloitte & Touche LLP

1 unchanged sentence

March 21, 2024

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

CREATIVE REALITIES, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share amounts)

(in thousands)

Current Assets:

Cash and cash equivalents

$ 1,633  

$ 2,883  

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

Unbilled receivables

$ 2,910 $ 1,633

Accounts receivable, net

Inventories, net

Prepaids and other current assets

Prepaid expenses and other current assets

Total Current Assets

13,982  

18,610 13,982

Property and equipment, net

26,453 26,453

Other intangible assets, net

24,062 23,752

Operating lease right-of-use assets

Intangibles, net

23,752  

26,453  

$ 66,015  

$ 22,881  

LIABILITIES AND SHAREHOLDERS’

Other non-current assets

$ 70,777 $ 66,015

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current Liabilities:

Accounts payable

$ 3,757  

$ 2,517  

Accrued expenses

$ 7,876 $ 3,757

Accrued expenses and other current liabilities

Deferred revenues

5 unchanged sentences

Total Current Liabilities

16,496  

20,197 16,496

Long-term Secured Promissory Note

1 unchanged sentence

Long-term related party Consolidation Term Loan, net of $ 94 and $ 840 discount, respectively

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

Long-term related party convertible loans payable, at fair value

Long-term obligations under operating leases

Contingent acquisition consideration, at fair value

Other liabilities

Contingent consideration, at fair value

Other non-current liabilities

Total Liabilities

40,436  

14,152  

SHAREHOLDERS’

41,946 40,436

Shareholders' Equity

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

1 unchanged sentence

Additional paid in capital

75,770  

60,863  

82,073 75,916

Accumulated deficit

( 50,409 )  

Total shareholders’

25,579  

TOTAL LIABILITIES AND SHAREHOLDERS’

$ 66,015  

$ 22,881  

( 53,346 ) ( 50,409 )

Total Shareholders' Equity

28,831 25,579

Total Liabilities and Shareholders' Equity

$ 70,777 $ 66,015

See accompanying Notes to Consolidated Financial Statements.

3 unchanged sentences

For the Years Ended

$ 20,303 $ 19,895

Services and other

24,863 23,455

45,166 43,350

Cost of sales

15,280 16,613

Services and other

Total cost of sales

22,983 25,611

22,183 17,739

Operating expenses:

2 unchanged sentences

General and administrative

10,795 11,892

Depreciation and amortization

1 unchanged sentence

Total operating expenses

Operating loss

Other income/(expenses):

20,837 20,219

Operating income (loss)

1,346 ( 2,480 )

Other expense (income):

Interest expense, including amortization of debt discount

Change in fair value of contingent consideration

1,419 ( 1,074 )

Change in fair value of warrant liability

Change in fair value of equity guarantee

Gain on settlement of obligations

Gain on fair value of debt

Loss on debt waiver consent

Loss on warrant amendment

Other income/(expense), net

Total other income/(expense)

Net income before income taxes

Loss on settlement of obligations

Other expenses (income), net

Total other expense (income)

4,200 ( 4,435 )

Net (loss) income before income taxes

( 2,854 ) 1,955

Income tax expense

Net income per common share - basic

Net income per common share - diluted

( 83 ) ( 79 )

Net (loss) income

$ ( 2,937 ) $ 1,876

Net (loss) income per common share - basic

$ ( 0.35 ) $ 0.28

Net (loss) income per common share - diluted

$ ( 0.35 ) $ 0.28

Weighted average shares outstanding - basic

2 unchanged sentences

CREATIVE REALITIES, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS ’

CONSOLIDATED STATEMENTS OF SHAREHOLDERS ’ EQUITY

For the years ended December 31, 2023 and 2022

2 unchanged sentences

Balance as of December 31, 2022

Stock-based compensation - employees

Stock-based compensation - directors

Stock-based compensation - vendors

7,266,382 $ 72 $ 75,916 $ ( 50,409 ) $ 25,579

Stock-based compensation

- - 445 - 445

Shares issued to directors as compensation

51,616 1 95 - 96

Shares issued to vendors as compensation

28,554 - 55 - 55

Shares issued to employees pursuant to the Retention Bonus Plan

62,475 1 138 - 139

Issuance of common stock, net

3,000,000 30 5,424 - 5,454

- - - ( 2,937 ) ( 2,937 )

Balance as of December 31, 2023

10,409,027 $ 104 $ 82,073 $ ( 53,346 ) $ 28,831

Year ended December 31, 2022

Balance as of December 31, 2021

4,002,843 $ 40 $ 60,943 $ ( 52,254 ) $ 8,729

Stock-based compensation

- - 1,887 - 1,887

Shares issued to vendors as compensation

41,369 - 100 - 100

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

2,388,836 24 2,254 - 2,278

Shares issued in Reflect Systems, Inc.

833,334 8 4,992 - 5,000

Warrant repricing events

- - 31 ( 31 ) -

Warrant amendment

Balance as of December 31, 2022

Year ended December 31, 2021

Balance as of December 31, 2020

Stock-based compensation –

Stock-based compensation - directors

Stock-based compensation - vendors

Conversion of Disbursed Escrow Loan

Gain on Extinguishment of Special Loan

Shares issued via registered direct offering

- - 5,709 - 5,709

- - - 1,876 1,876

Balance as of December 31, 2022

7,266,382 $ 72 $ 75,916 $ ( 50,409 ) $ 25,579

See accompanying Notes to Consolidated Financial Statements.

1 unchanged sentence

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands, except share per share amounts)

(in thousands)

For the Years Ended

Operating Activities:

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

Net (loss) income

$ ( 2,937 ) $ 1,876

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

Depreciation and amortization

Amortization of debt discount

Stock-based compensation

Change in excess/obsolete inventory reserve

Change in allowance for doubtful accounts

Employee retention and other government credits

Increase in notes due to in-kind interest

Non-cash receivables from in-process projects

Non-cash application of customer deposits to completed projects

Gain on forgiveness of Paycheck Protection Program

Gain on settlement of Seller Note

Loss/(Gain) on settlement of obligations

Changes in fair value of Convertible Loan

Amortization of stock-based compensation

Bad debt expense

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

1,419 ( 1,074 )

Deferred income taxes

Gain on change in fair value of warrants

Loss on debt waiver consent

Loss on warrant amendment

Gain on change in fair value of contingent consideration

Gain on change in fair value of warrants

Loss on settlement of obligations

Changes to operating assets and liabilities:

Accounts receivable and unbilled receivables

Accounts receivable

( 4,358 ) ( 3,927 )

Inventories, net

( 300 ) ( 197 )

Prepaid expenses and other current assets

Accounts payable and other current payables

Accounts payable

Accrued expenses and other current liabilities

Deferred revenue

Accrued expenses, net

( 91 ) ( 462 )

Customer deposits

( 136 ) ( 47 )

Net cash provided by (used in) operating activities

5,167 ( 708 )

Investing activities

1 unchanged sentence

Purchases of property and equipment

( 306 ) ( 149 )

Capitalization of internal and external labor for software development

( 3,721 ) ( 4,140 )

Net cash used in investing activities

( 4,027 ) ( 21,475 )

Financing activities

Principal payments on finance leases

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

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

Proceeds from sale of common stock, net of offering expenses

Proceeds from Acquisition Term Loan, net of offering expenses

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

Proceeds from Term Loan (2022)

Repayment of seller note

Proceeds from common stock issuance, net of issuance costs

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

Repayment of Consolidated Term Loan

Repayment of Term Loan (2022)

Repayment of Secured Promissory Note

( 1,254 ) ( 1,044 )

Principal payments on finance leases

Net cash provided by financing activities

Decrease in Cash and Cash Equivalents

Increase (decrease) in Cash and Cash Equivalents

1,277 ( 1,250 )

Cash and Cash Equivalents, beginning of year

Cash and Cash Equivalents, end of year

$ 2,910 $ 1,633

See accompanying Notes to Consolidated Financial Statements.

2 unchanged sentences

(in thousands, except share and per share amounts)

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

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

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

NATURE OF ORGANIZATION AND OPERATIONS

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

the Company ”

refer to Creative Realities, Inc.

Unless the context otherwise indicates, references in these Notes to the accompanying Consolidated Financial Statements to “ we, ” “ us, ” “ our ” and “ the Company ” refer to Creative Realities, Inc.

and its subsidiaries.

Nature of the Company ’

Nature of the Company ’ s Business

Creative Realities, Inc.

9 unchanged sentences

and proprietary processes and automation tools.

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

("Reflect"), a Delaware corporation.

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 1 -for- 3 reverse stock split of the shares of the Company's common stock, par value $ 0.01 per share.

All share and per share information (including share and per share information related to share-based compensation) has been retroactively adjusted to reflect the reverse stock split within this Report.

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.

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 reductions in the number of shares of common stock issuable upon exercising or vesting of equity awards in proportion to the reverse stock split and proportionate increases in exercise price or share-based performance criteria, if any, applicable to such awards.

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 completed 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 .

Liquidity and Financial Condition

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

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

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

Our history of operating losses and near term cash obligations are indicators of substantial doubt about our ability to continue as a going concern. We obtained a continued support letter from Slipstream Communications, LLC ("Slipstream") through March 31, 2024, which alleviated the substantial doubt about our ability to continue as a going concern. We can provide no assurance that our ongoing operational efforts will be successful which could have a material adverse effect on our results of operations and cash flows.

In accordance with Accounting Standards Update (“ASU”) No.

2014 - 15, Disclosure of Uncertainties about an Entity ’ s Ability to Continue as a Going Concern (Subtopic 205 - 40 ) ( “ ASU 205 - 40 ” ) , 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 Consolidated Financial Statements are issued.

At December 31, 2023, the Company has an accumulated deficit of $ 53,346 , negative working capital of $ 1,587 , including current debt obligations of $ 3,690 , and cash of $ 2,910 .

For the year ended December 31, 2023, the Company generated operating income of $ 1,346 and generated positive net cash flows from operations of $ 5,167 .

Pursuant to the Second Amended and Restated Credit and Security Agreement (the "Credit Agreement") 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 $ 4,037 during the twelve months subsequent to the reporting date of these Consolidated Financial Statements.

In addition, the Company is required to repay the principal balance on the Acquisition Term Loan of $ 10,000 at maturity and resolve the contingent consideration, currently estimated for accounting purposes at $ 11,208 , each of which mature on February 17, 2025.

The Company does not have sufficient cash on hand or liquidity to make these principal repayments.

The 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, the Company plans to evaluate its available options for refinancing, via recapitalization, debt financing or equity financing, its upcoming obligations associated with the Acquisition Term Loan, Consolidation Term Loan, and contingent consideration.

However, these plans have not been finalized, are subject to market conditions, and are not within the Company’s control, and therefore cannot be deemed probable.

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 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.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

1 unchanged sentence

Basis of Presentation

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

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

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

and our wholly owned subsidiaries Allure Global Solutions, Inc., Creative Realities Canada, Inc., and Reflect Systems, Inc.

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

Recently Issued and Adopted Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No.

2016 - 13, Financial Instruments — Credit Losses , which requires entities to estimate expected lifetime credit losses on financial assets and provide expanded disclosures.

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.

2016 - 13 on January 1, 2023.

The adoption of this guidance did not have a material impact on the Company's Consolidated Financial Statements, as the Company's primary financial assets are its trade accounts receivable, which are short-term financings under industry standard credit and trade terms.

In August 2020, the FASB issued Accounting Standards Update No.

2020 - 06, Debt — Debt with Conversion and Other Options (Subtopic 470 - 20 ) and Derivatives and Hedging — Contracts in Entity ’ s Own Equity (Subtopic 815 - 40 ):

Accounting for Convertible Instruments and Contracts in an Entity ’ s Own Equity (ASU 2020 - 06 ) , which simplifies the accounting for convertible instruments by reducing the number of accounting models available for convertible debt instruments.

This guidance also eliminates the treasury stock method to calculate diluted earnings per share for convertible instruments and requires the use of the if-converted method.

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

We do not expect the adoption of this guidance to have a material impact on our Consolidated Financial Statements.

Revenue Recognition

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

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

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.

2 unchanged sentences

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

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

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

The Company receives variable consideration in very few instances.

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

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

The Company has very few contracts with material extended payment terms as payment is typically due at or shortly after the time of the sale, typically ranging between thirty and ninety days.

In those instances where the Company has material extended payment terms (most commonly in multi-year arrangements where the Company acts as an agent to a transaction on behalf of its customers), the Company evaluates and applies constraints to arrive at the revenue recognized in the period in which a contract is entered.

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

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

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

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

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

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

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

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

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

Allowance for Credit Losses

The allowance for credit losses is the Company's best estimate of the amount of expected lifetime credit losses in the Company's accounts receivable.

The Company regularly reviews the adequacy of its allowance for credit losses.

The Company estimates losses over the contractual life using assumptions to capture the risk of loss, even if remote, based principally on how long a receivable has been outstanding.

Account balances are charged off against the allowance for credit losses after all reasonable means of collection have been exhausted and the potential for recovery is considered remote.

Other factors considered include historical write-off experience, current economic conditions, customer credit, and past transaction history with the customer.

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

The Company had the following activity for its allowance for credit losses from December 31, 2021 to December 31, 2023:

Balance as of December 31, 2021

Amounts accrued

Write-offs charged against the allowance

Balance as of December 31, 2022

Amounts accrued

Write-offs charged against the allowance

Balance as of December 31, 2023

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

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

$ 1,671  

$ 1,583  

Raw materials

$ 2,063 $ 1,671

Work-in-process

Total inventories

$ 2,267  

$ 1,880  

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

$ 2,567 $ 2,267

The reserve for obsolete inventory at December 31, 2023 and 2022 was $ 160 and $ 1,777 , respectively.

The Company disposed of $ 1,707 related to Safe Space Solutions during the year ended December 31, 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.

5 unchanged sentences

Basic and Diluted Income/(Loss) per Common Share

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

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

Basic weighted average shares outstanding includes only outstanding common shares.

Diluted weighted average shares outstanding includes outstanding common shares and potential dilutive common shares outstanding in accordance with the treasury stock method.

Shares reserved for outstanding stock options, including stock options with performance restricted vesting, and warrants totaling approximately 7,360,271 and 2,324,007 at December 31, 2022 and 2021 , respectively were excluded from the computation of income/(loss) per share as the strike price on the options and warrants were higher than the Company's market price and therefore anti-dilutive.

Shares reserved for outstanding stock options, including stock options with performance restricted vesting, and warrants totaling approximately 6,223,134 and 7,360,271 at December 31, 2023 and 2022 , respectively were excluded from the computation of (loss) income per share as the strike price on the options and warrants were higher than the Company's market price and therefore anti-dilutive.

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

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

Temporary differences arise from a number of matters including, but not limited to, net operating losses, differences in basis of intangibles, stock-based compensation, reserves for uncollectible accounts receivable and inventory, differences in depreciation methods, and accrued expenses.

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

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

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

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

Goodwill and Definite-Lived 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.

3 unchanged sentences

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

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

Our significant estimates include:

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

Actual results could differ from those estimates.

9 unchanged sentences

accumulated depreciation and amortization

( 457 )  

( 473 ) ( 457 )

Net property and equipment

4 unchanged sentences

Shorter of 5 years or term of lease

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

Depreciation expense was $ 166 and $ 131 for the years ended December 31, 2023 and 2022 , respectively.

During the year ended December 31, 2023, the Company disposed of certain fully depreciated fixed assets with an acquisition value of $ 150 , no such disposals occurred during the year ended December 31, 2022.

Research and Development and Software Development Costs

2 unchanged sentences

We capitalized approximately $ 3,366 and $ 4,444 for the years ended December 31, 2023 and 2022 , respectively.

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

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

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

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

Business Combinations

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

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

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

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

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

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

Contingent Consideration

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

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

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS  

Recently adopted

On January 

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

2021 - 08,  

Business Combinations (Topic 805 ):

Accounting for Contract Assets and Contract Liabilities from Contracts with Customers  (ASU 2021 - 08 ), which clarifies that an acquirer of a business should recognize and measure contract assets and contract liabilities in a business combination in accordance with Accounting Standards Codification (ASC) Topic 606,  

Revenue from Contracts with Customers (Topic 606 ) .

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

In June 2016, the FASB issued ASU No.

2016 - 13,  

Financial Instruments —

Credit Losses , which requires entities to estimate expected lifetime credit losses on financial assets and provide expanded disclosures. The main objective is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date.

The amendments in this update replace the incurred loss methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to calculate credit loss estimates.

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

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

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

Not yet adopted

In August 2020, the FASB issued Accounting Standards Update No.

2020 - 06,  

Debt —

Debt with Conversion and Other Options (Subtopic 470 - 20 ) and Derivatives and Hedging —

Contracts in Entity ’

s Own Equity (Subtopic 815 - 40 ):

Accounting for Convertible Instruments and Contracts in an Entity ’

s Own Equity  

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

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

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

FAIR VALUE MEASUREMENT

We measure certain financial assets, including cash equivalents, at fair value on a recurring basis.

In accordance with ASC 820 - 10 - 30, fair value is a market-based measurement that should be determined based on the assumptions that market participants would use in pricing an asset or liability.

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

The three hierarchy levels are defined as follows:

Level 1 — Valuations based on unadjusted quoted prices in active markets for identical assets.

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

quoted prices in markets that are not active;

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

Level 3 — Valuations based on inputs that are unobservable and involve management judgment and the reporting entity’s own assumptions about market participants and pricing.

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

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

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

The calculation of the weighted average cost of capital and management’s forecast of future financial performance utilized within our discounted cash flow model for the impairment of goodwill contains inputs which are unobservable and involve management judgment and are considered Level 3 estimates.

REVENUE RECOGNITION

The Company applies ASC 606 for revenue recognition.

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

(in thousands)

$ 19,895  

$ 9,450  

Installation Services

Software Development Services

License Revenue

The following table disaggregates the Company’s revenue by major source for the years ended December 31, 2023 and 2022 :

$ 20,303 $ 19,895

Managed Services

14,320  

15,916 14,320

Installation Services

Other Services

Total Services

23,455  

24,863 23,455

Total Hardware and Services

$ 43,350  

$ 18,437  

$ 45,166 $ 43,350

System hardware sales

2 unchanged sentences

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

System hardware revenues are classified as “Hardware”

within our disaggregated revenue. 

Installation services

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

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

When system hardware sales include installation services to be performed by the Company, the goods and services in the contract are not distinct, so the arrangement is accounted for as a single performance obligation.

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

Revenues are recognized over time as the installation services are completed based on the relative portion of labor hours completed as a percentage of the budgeted hours for the installation.

Installation services revenues are classified as “Installation Services”

within our disaggregated revenue.

Software design and development services

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

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

Software is delivered to customers electronically.

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

within our disaggregated revenue.

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

Software as a service license sales

3 unchanged sentences

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

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

within our disaggregated revenue.

Software as a service perpetual license sales

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

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

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

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

Maintenance and support services

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

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

networks 7 days a week, 24 hours a day.

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

The Company offers a hosting service through our network operations center, or NOC, allowing the ability to monitor and support its customers’ networks 7 days a week, 24 hours a day.

These contracts are generally 12 - 36 months in length.

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

Maintenance and Support revenues are classified as “Managed Services”

within our disaggregated revenue.

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

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

These agreements are renewable by the customer.

4 unchanged sentences

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

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

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

Our media revenue contracts with customers range from four weeks to 

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

ninety ( 90 ) days of billing.

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

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

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

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

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

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

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

FAIR VALUE MEASUREMENT

We measure certain financial assets, including cash equivalents, at fair value on a recurring basis.

In accordance with ASC 820 - 10 - 30, fair value is a market-based measurement that should be determined based on the assumptions that market participants would use in pricing an asset or liability.

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

The three hierarchy levels are defined as follows:

Level 1 —

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

Level 2 —

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

quoted prices in markets that are not active;

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

Level 3 —

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

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

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

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

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

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

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

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

Installation services

The Company performs installation services associated with system hardware sales to customers and recognizes revenue upon completion of the installations.

Installation services also include engineering and configuration services required to be performed to design and deploy a digital signage system that subsequently becomes an installation project.

When system hardware sales include installation services to be performed by the Company, the goods and services in the contract are, in certain instances, not distinct as the customer contract contemplates an installed solution, inclusive of system hardware.

In those instances, the arrangement is accounted for as a single performance obligation.

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

In these circumstances, revenues are recognized over time as the installation services are completed based on the relative portion of labor hours completed as a percentage of the budgeted hours for the installation.

Typically, in large scale deployments that include installation services, the contract terms segregate performance obligations related to hardware sales and installation services by providing for different legal transfer of title and risk of loss.

In those circumstances, installation services are deemed to be a separate performance obligation.

In each instance, installation services are recognized at the time of completion.

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

Software design and development services

Software design and custom development sales represent fixed fee orders for work on a time and materials basis and are recognized as revenue when the application, feature, or custom software code has been received and delivery has occurred to the customer.

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

Software is delivered to customers electronically.

Software design and development revenues are classified as “Other Services” within our disaggregated revenue.

Media revenues are derived from selling (i) promotion and sponsorship packages to monetize customer infrastructure assets, including mobile takeover or physical presence, or (ii) digital advertising inventory to advertisers on digital displays or other outdoor structures, owned or controlled by our customers, each within physical venues.

We generally do not own the physical structures on which digital advertising we sell is displayed but instead sell advertising or sponsorship opportunities on behalf of our media network owners to our brands and advertisers..

The Company has concluded that it acts as an agent and reports media revenues on a net basis, with the Company recording its commission, which typically is between thirty percent ( 30 %) and forty percent ( 40 %) of the total media sales contract, as revenue in the consolidated financial statements.

The media sales contracts we facilitate on behalf of our customers range from a single day to eight years.

The Company facilitates billing advertisers on behalf of our customers and does not remit the net cash to our customer until the advertiser has paid the Company the fees owed for such advertising.

Media revenue services are recognized when the Company has completed its performance obligations under the contract with our customers, which typically has concluded upon facilitating execution of contracts between our customer and a brand/advertiser.

The Company applies time-based constraints in accordance with ASC 606 to evaluate the earned portion of the contract to record at execution.

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

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

Software as a service perpetual license sales

Rarely, the Company sells perpetual licenses to its software products under legacy contractual arrangements (as opposed to subscription licenses).

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

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

Perpetual license revenue is classified as "Other Services" within our disaggregated revenue.

BUSINESS COMBINATION

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, would merge with and into Reflect, with Reflect surviving the merger and becoming our wholly owned subsidiary, which transaction is referred to herein as the “Merger.” On February 17, 2022, the parties consummated the Merger.

Reflect provides digital signage solutions, including software, strategic and media services to a wide range of companies across the retail, financial, hospitality and entertainment, healthcare, and employee communications industries in North America.

Reflect offers digital signage platforms, including ReflectView, a platform used by companies to power hundreds of thousands of active digital displays.

Through its strategic services, Reflect assists its customers with designing, deploying and optimizing their digital signage networks, and through its media services, Reflect assists customers with monetizing their digital advertising networks.

Subject to the terms and conditions of the Merger Agreement, at the Closing, Reflect stockholders as of the effective time of the Merger collectively received from the Company, in the aggregate, the following Merger consideration:

(i) $ 16,166 in cash, (ii) 777,778 shares of common stock of Creative Realities (valued based on an issuance price of $ 6 per share) (the “CREX Shares”), and (iii) the Secured Promissory Note (as described below).

In addition, the Merger Agreement requires the Company to pay to the Reflect stockholders additional contingent supplemental cash payments (the “Guaranteed Consideration”), if any, payable on or after February 17, 2025 ( subject to the Extension Option described below, the “Guarantee Date”), in an amount by which the value of the CREX Shares on such anniversary is less than $ 6.40 per share, or if certain customers of Reflect collectively achieve over 85,000 billable devices online at any time on or before December 31, 2022, is less than $ 7.20 per share (such applicable amount, the “Guaranteed Price”), multiplied by the amount of CREX Shares held by the Reflect stockholders on the Guarantee Date (subject to the Extension Option described below).

The Company has recorded contingent liabilities related to the Guaranteed Consideration to reflect the Company's 1 -for- 3 reverse stock split that occurred on March 23, 2023.

At or before December 31, 2022, the condition of certain customers of Reflect collectively to achieve over 85,000 billable devices online was not met.

Accordingly, the amount of the Company's potential liability related to the contingent consideration was reduced at December 31, 2022 from $ 21.60 per share to $ 19.20 per share, a reduction of $ 2.40 per share.

The Company may exercise an extension option (the “Extension Option”) to extend the Guarantee Date by six ( 6 ) months, from February 17, 2025 to August 17, 2025, if (i) the Extension Threshold Price is greater than or equal to 70 % of the Guaranteed Price described above, and (ii) the Company provides written notice of its election to exercise the Extension Option no later than February 7, 2025.

The “Extension Threshold Price” means the average closing price per share of Creative Realities common stock as reported on the Nasdaq Capital Market (or NYSE) in the fifteen ( 15 ) consecutive trading day period ending February 2, 2025.

The Merger Agreement provides that if the Extension Threshold Price is less than 80 % of the Guaranteed Price, then the Guaranteed Price will be increased by $ 1.00 per share.

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

The Retention Bonus Plan is described below.

Retention Bonus Plan

On February 17, 2022, in connection with the Closing, the Company adopted a Retention Bonus Plan, pursuant to which the Company is required to pay to key members of Reflect’s management team an aggregate of $ 1,334 in cash, which was paid 50 % at the Closing, and subject to continuous employment with Reflect or Creative Realities, 25 % was paid on February 17, 2023 ( the one -year anniversary of Closing) and 25 % was paid on February 17, 2024 ( the two -year anniversary of the Closing).

In connection with the closing of the Merger, the future cash payments due on the one -year and two -year anniversaries of the Closing were deposited into an escrow agreement.

The Retention Bonus Plan also requires the Company to issue Common Stock having an aggregate value of $ 667 to the plan participants as follows:

50 % of the value of such shares were issued at the Closing, and subject to continuous employment with Reflect or Creative Realities, 25 % of the value of such shares was issued on February 17, 2023 ( the one -year anniversary of Closing) and the remaining 25 % of the value of such shares will be issued on February 17, 2024 ( the two -year anniversary of the Closing).

The shares issued on the Closing were valued at $ 6.00 per share.

The shares issued on the one -year anniversary were valued at $ 2.22 based on the value of shares issuable divided by the trailing 10 -day volume weighted average price ("VWAP") of the shares as of February 17, 2023 as reported on the Nasdaq Capital Market.

The Company issued 62,475 shares to key members of Reflect's management team pursuant to the Retention Bonus Plan.

Certain participants made an election to have stock withheld to cover applicable withholding taxes.

In such cases, the Company reduced the stock award issued to the employee and settled the employees tax liability by remitting cash to the applicable taxing authorities.

The shares issued on the two -year anniversary were valued at $ 3.29 based on the value of shares issuable divided by the trailing 10 -day volume weighted average price ("VWAP") of the shares as of February 17, 2024 as reported on the Nasdaq Capital Market.

The Company issued 37,632 shares to key members of Reflect's management team pursuant to the Retention Bonus Plan.

Certain participants made an election to have stock withheld to cover applicable withholding taxes.

In such cases, the Company reduced the stock award issued to the employee and settled the employees tax liability by remitting cash to the applicable taxing authorities.

Upon the resignation of a participant’s employment for “good reason,” or termination of the employment of a participant without “cause,” each as defined in the Retention Bonus Plan, the participant will be fully vested and will receive all cash and shares allocated to such participant under the Retention Bonus Plan.

Any amounts unpaid by reason of a lapse in continuous employment or otherwise will be reallocated among the remaining Retention Bonus Plan participants.

Purchase price

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

Consideration

Cash consideration for Reflect stock

Cash consideration for Retention Bonus Plan

Common stock issued to Reflect shareholders

Common stock issued to Retention Bonus Plan

Secured Promissory Note

Contingent consideration

Total consideration

Vendor deposit with the Company

Cash acquired

Net consideration transferred

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

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

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

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

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

On February 11, 2023, the Company and the Stockholders’ Representative executed an amendment (the “Note Amendment”) to the Secured Promissory Note.

The Note Amendment eliminated the balloon payment, extending the maturity date for a one -year period, to February 17, 2024.

During the extended period, the Company continued to make monthly principal payments of $ 104 , and the annual interest rate on the outstanding principal increased from 0.59 % to 4.60 %, which will accrue and is payable in full on the new maturity date.

Represents an estimate of the fair value of the Guaranteed Consideration as of the Merger, which, if any, is payable on or after February 17, 2025 ( subject to the Extension Option), in an amount by which the value of the CREX Shares on such anniversary is less than $ 6.40 per share, multiplied by the amount of CREX Shares held by the Reflect stockholders on the Guarantee Date (subject to the Extension Option), subject to the terms of the Merger Agreement.

The Company has recorded contingent liabilities related to the Guaranteed Consideration to reflect the Company's 1 -for- 3 reverse stock split that occurred on March 23, 2023.

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

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

Represents the Reflect cash balance acquired at Closing.

The Company incurred $ 444 of direct transaction costs related to the Reflect Merger for the year ended December 31, 2022.

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

The Company accounted for the Merger using the acquisition method of accounting.

The final allocation of the purchase price is based on the fair value of assets acquired and liabilities assumed as of February 17, 2022, which included the following:

Accounts receivable

Prepaid expenses & other current assets

Property and equipment

Operating right of use assets

Identified intangible assets:

Definite-lived trade names

Definite-lived developed technology

Definite-lived customer relationships

Definite-lived noncompete agreements

Accounts payable

Accrued expenses

Customer deposits

Deferred revenues

Current maturities of operating leases

Long-term obligations under operating leases

Other liabilities

Net consideration transferred

The Company engaged a third -party valuation specialist to assist in the identification and calculation of the fair value of those separately identifiable intangible assets.

The Company completed its valuation procedures by asset utilizing the following approaches:

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

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

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

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

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

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

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

The Company is amortizing the identifiable intangible assets on a straight-line basis over the weighted average lives ranging from 2 to 10 years as outlined in the table below.

The table below sets forth the valuation and amortization period of identifiable intangible assets:

Identifiable definite-lived intangible assets:

$ 960 5 years

Developed technology

5,130 10 years

Customer relationships

11,040 10 years

The Company estimated the preliminary fair value of the acquired property, plant and equipment using a combination of the cost and market approaches, depending on the component.

The preliminary fair value of such property, plant and equipment is $ 96 .

The excess of the purchase price over the fair value of the tangible net assets and identifiable intangible assets acquired was recorded as goodwill.

The factors contributing to the recognition of the amount of goodwill are based on several strategic and synergistic benefits that are expected to be realized from the Merger.

These benefits include a comprehensive portfolio of iconic customer brands, complementary product offerings, enhanced national footprint, and attractive synergy opportunities and value creation.

None of the goodwill is expected to be deductible for income tax purposes.

SUPPLEMENTAL CASH FLOW STATEMENT INFORMATION

2 unchanged sentences

Property and equipment in accounts payable

Conversion of disbursed escrow loan into common stock

Increase in debt related to financing fees

Decrease in debt discount via amended Credit Agreement

Supplemental disclosure information for cash flow

Cash paid during the period for:

$ 1,350  

Income taxes, net

$ 1,685 $ 1,350

INTANGIBLE ASSETS AND GOODWILL

Intangible Assets

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

Intangible assets consisted of the following at December 31, 2023 and 2022:

Technology platform

$ 9,765  

$ 4,635  

$ 6,900 2,255 $ 9,765 4,354

Purchased and developed software

5,284 3,405 4,682 3,375

In-Process internally developed software platform

6,080 - 4,074 -

Customer relationships

15,000  

13,910 3,054 15,000 2,849

Trademarks and trade names

1,260 660 1,600 808

Total amortizable intangible assets

35,151  

11,399  

13,547  

33,464 9,402 35,151 11,399

Accumulated amortization

11,399  

Net book value of amortizable intangible assets

$ 23,752  

$ 4,850  

$ 24,062 $ 23,752

For the years ended December 31, 2023 and 2022 , amortization of intangible assets charged to operations was $ 3,055 and $ 2,702 , respectively.

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

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

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

For the year ended December 31, 2023, the Company wrote-off a $ 340 fully amortized trade name asset, a $ 1,090 fully amortized customer list asset, a $ 2,864 fully amortized technology asset, a $ 758 fully amortized capitalized software and the related accumulated amortization.

There was no impact on the Company’s Consolidated Balance Sheet or Consolidated Statement of Operations as a result of these write-offs during the period.

Estimated amortization is as follows:

1 unchanged sentence

Year ending December 31,

$ 3,272  

12,088  

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

1 unchanged sentence

Technology platform and patents

7 - 10  

Purchased and developed software

Customer relationships

3 - 15  

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

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

Goodwill is subject to an impairment review at a reporting unit level, on an annual basis at September 30th each fiscal year, when an event occurs, or circumstances change that would indicate potential impairment.

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

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

Fair value of the reporting unit was estimated using a discounted cash flow analyses consisting of various assumptions, including expectations of future cash flows based on projections or forecasts derived from analysis of business prospects and economic or market trends that may occur, specifically, the Company gave significant consideration to actual historic financial results, including revenue growth rates in the preceding three years.

Based on the Company’s assessment, we determined that the fair value of our reporting unit exceeds its carrying value, and accordingly, the goodwill associated with the reporting unit was not considered to be impaired at September 30, 2022.

At December 31, 2022, we concluded the decline in our market value represented an interim indicator of potential impairment. 

Based on a quantitative assessment of our fair value performed at December 31, 2022, using the same approach as our annual impairment performed at September 30, described above, we concluded that the carrying value of our goodwill did not exceed the reporting unit fair value.

While our overall business performance has been consistent with our expectations, both before and after the acquisition of Reflect, we believe a significant portion of the decline in our market price relates primarily to several macroeconomic factors including:

( 1 ) market wide recessionary fears, ( 2 ) rapid inflation fears, which often have an outsized, direct negative impact on the share price of high-growth companies with limited or negative cash flow from operations, ( 3 ) a lack of comprehension by the markets of the recent Merger with Reflect and related financing transaction, and ( 4 ) the sale of over 

2,333,334 shares of our common stock into the market by a new investor, resulting in significant negative volume and price pressure on the stock unrelated to the Company fundamentals.

We do not believe these factors are consistent with or reflective of the underlying value of the business, and there were no other indicators of potential impairment as of December 31, 2022.

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

The Company recognizes that any changes in our projected 2023 and future results could potentially have a material impact on our assessment of goodwill impairment.

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

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

Fair value of the reporting unit was estimated using both ( 1 ) a market approach, leveraging recent industry merger and acquisition activity as well as comparable public company information, and ( 2 ) a discounted cash flow analyses consisting of various assumptions, including expectations of future cash flows based on projections or forecasts derived from analysis of business prospects and economic or market trends that may occur.

Specifically, the Company gave significant consideration to actual historic financial results, including revenue growth rates in the current and preceding three years, further informed by known backlog and customer acquisitions.

Based on the Company’s assessment, we determined that the fair value of our reporting unit exceeds its carrying value, and accordingly, the goodwill associated with the reporting unit is not considered to be impaired at September 30, 2023.

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 as of our assessment date related 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.

Based on the improvement of our share price and market capitalization, along with improving Company fundamentals, we believe our implied fair value continues to exceed our total carrying value as of December 31, 2023.

The Company recognizes that any changes in our 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.

5 unchanged sentences

Interest Rate

$ 10,000  

833,334  

8.0% interest (1)

0.59% interest (2)

898,165  

$ 10,000 2/15/2025

833,334 8.0% interest (1)

5,147 2/15/2025

898,165 10.0% interest (2)

Total debt, gross

20,641  

1,731,499  

$ 15,147 1,731,499

Debt discount

( 3,069 )  

Total debt, net

$ 17,572  

Less current maturities

( 4,499 )  

Long term debt

$ 13,073  

As of December 31, 2022

Interest Rate

$ 4,767  

196,079  

$ 10,000 2/15/2025

833,334 8.0% interest (1)

7,185 2/15/2025

898,165 10.0% interest (2)

Total debt, gross

196,079  

( 166 )  

1,456 2/17/2024

- 0.59% interest (3)

2,000 9/1/2023

- 12.5% interest (4)

Total debt, gross

$ 20,641 1,731,499

Debt discount

( 144 )  

Total debt, net

$ 6,875  

Total debt, gross

Less current maturities

Long term debt

$ 6,875  

Acquisition Term Loan with related party

Secured Promissory Note

Consolidation Term Loan with related party

Term Loan ( 2022 ) with related party

Senior Secured Term Loan with related party

Secured Convertible Special Loan Promissory Note, at fair value, with related party

Total debt, net

A – Acquisition Term Loan with related party

B – Consolidation Term Loan with related party

C – Secured Promissory Note

D – Term Loan ( 2022 ) with related party

8.0 % cash interest per annum through maturity at February 15, 2025

0.59 % cash interest per annum (the applicable federal rate) through February 17, 2023. 

Annual interest rate on the outstanding principal increased from 0.59 % to 4.60 % per annum through maturity at February 17, 2024.

10.0 % cash interest per annum through maturity date at February 15, 2025.

0.59 % cash interest per annum (the applicable federal rate) through February 17, 2023.

Annual interest rate on the outstanding principal increased from 0.59 % to 4.60 % per annum through maturity.

12.5 % cash interest per annum through maturity at September 1, 2023.

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

Secured Promissory Note

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

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

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

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

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

indemnification obligations until released on February 17, 2023 ( the one -year anniversary of the closing of the Merger), at which time any remaining proceeds not subject to a pending indemnification claim will be paid to the exchange agent for payment to the Reflect Stockholders.

The Secured Promissory Note is secured by a first -lien security interest in certain contracts of Reflect, including obligations arising out of those certain contracts. The Company has the right to offset amounts payable under the Secured Promissory Note upon a final, non-appealable decision of a court that entitles the Company or its affiliates to any damages for indemnification under the Merger Agreement, or the Stockholders’

Representative’s agreement in writing to such damages.

On February 11, 2023, the Company and the Stockholders’

Representative executed an amendment (the “Note Amendment”) to the Secured Promissory Note. The Note Amendment eliminates the balloon payment, extending the maturity date for a one -year period, to February 17, 2024.

During the extended period, the Company will continue to make monthly principal payments of $ 104 , and the annual interest rate on the outstanding principal increased from 0.59 % to 4.60 %, which will accrue and is payable in full on the new maturity date.

On February 17, 2022, in connection with the Closing, the Company issued to RSI Exit Corporation (“Stockholders’ Representative”), the representative of Reflect stockholders, a $ 2,500 Note and Security Agreement (the “Secured Promissory Note”).

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

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

All payments under the Secured Promissory Note were paid to the escrow agent in the Merger Agreement to be placed into the escrow account to secure the Reflect stockholders’ indemnification obligations until released on February 17, 2023 ( the one -year anniversary of the closing of the Merger), at which time any remaining proceeds not subject to a pending indemnification claim would be paid to the exchange agent for payment to the Reflect stockholders pursuant to the Merger Agreement.

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

The Company has the right to offset amounts payable under the Secured Promissory Note upon a final, non-appealable decision of a court that entitles the Company or its affiliates to any damages for indemnification under the Merger Agreement, or the Stockholders’ Representative’s agreement in writing to such damages.

On February 11, 2023, the Company, Reflect and the Stockholders’ Representative, executed a Second Amendment to the Merger Agreement.

The Second Amendment to the Merger Agreement provided that, among other things, the cash merger consideration payable in the Merger should be reduced by $ 242 , or the “Claim Amount,” subject to a reduction in the Claim Amount to the extent that Reflect or Creative Realities receive payments of certain accounts receivable of Reflect, up to $ 27 .

An employer retention credit of $ 242 (the “ERC”) based on the operations of Reflect pre-Merger remains outstanding and will be paid to the Stockholders’ Representative for the benefit of former Reflect stockholders upon receipt, subject to the offset rights of Creative Realities.

In addition, the Company and the Stockholders’ Representative executed an amendment (the “Note Amendment”) to the Secured Promissory Note on February 11, 2023.

The Note Amendment eliminated the balloon payment, extended the maturity date for a one -year period, to February 17, 2024.

During the extended period, the Company continued to make monthly principal payments of $ 104 , and the annual interest rate on the outstanding principal increased from 0.59 % to 4.60 %, which accrued and is payable in full on the new maturity date.

On December 15, 2023, the Company paid $ 110 as final settlement of the Secured Promissory Note, including accrued interest through the settlement date.

All rights to payment of the ERC were retained by the Reflect stockholders as part of this settlement.

Second Amended and Restated Loan and Security Agreement

On February 17, 2022, the Company and its subsidiaries (collectively, the “Borrowers”) refinanced their debt facilities with Slipstream Communications, LLC (“Slipstream”), pursuant to a Second Amended and Restated Credit and Security Agreement (the “Credit Agreement”).

The Borrowers include Reflect Systems, Inc.

(“Reflect”), which became a wholly owned subsidiary of the Company as a result of the closing of the Merger on February 17, 2022.

On February 17, 2022, the Company and its subsidiaries (collectively, the “Borrowers”) refinanced their debt facilities with Slipstream, pursuant to a Second Amended and Restated Credit and Security Agreement (the “Credit Agreement”).

The Borrowers include Reflect, which became a wholly owned subsidiary of the Company as a result of the Closing on February 17, 2022.

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

The Credit Agreement also provides that the Company’s outstanding loans from Slipstream at December 31, 2021, consisting of its pre-existing $ 4,767 senior secured term loan and $ 2,418 secured convertible loan, with an aggregate of $ 7,185 in outstanding principal and accrued and unpaid interest under such loans, were consolidated into a term loan (the “Consolidation Term Loan”).

The Consolidation Term Loan has an interest rate of 10.0 %, with 75.0 % warrant coverage (or 898,165 warrants).

On the first day of each month, commencing March 1, 2022 through February 1, 2025, the Borrowers will make interest-only payments on the Consolidation Term Loan.

On the first day of each month, commencing March 1, 2022 through February 1, 2025, the Borrowers will make interest-only payments on the Consolidation Term Loan.

Commencing on September 1, 2023, and on the first day of each month thereafter until the Maturity Date, the Borrowers will make a payment on the Consolidation Term Loan, in an equal monthly installment of principal sufficient to fully amortize the Consolidation Term Loan in eighteen equal installments.

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

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

In addition to refinancing the existing debt with Slipstream, the Company issued to Slipstream a $ 10,000 , 36 -month senior secured term loan (the “Acquisition Term Loan”) resulting in $ 10,000 in gross proceeds, or $ 9,950 in net proceeds.

The Acquisition Term Loan matures on February 17, 2025 ( the “Maturity Date”) and has an interest rate of 8.0 %, with 50.0 % warrant coverage (or 833,334 warrants).

In aggregate the Company recorded a loss on extinguishment of $ 295 during the year ending December 31, 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.

The Acquisition Term Loan matures on February 17, 2025 ( the “Maturity Date”) and has an interest rate of 8.0 %, with 50.0 % warrant coverage (or 833,334 warrants).

On the first day of each month, commencing March 1, 2022 through February 1, 2025, the Borrowers will make interest-only payments on the Acquisition Term Loan.

No principal payments on the Acquisition Term Loan are payable until the Maturity Date.

In connection with the Acquisition Term Loan and Consolidation Term Loan warrant coverage, the Company issued to Slipstream a warrant to purchase an aggregate of 1,731,499 shares of Company common stock (the “Lender Warrant”).

The Lender Warrant has a five -year term, an initial exercise price of $ 6.00 per share, subject to adjustments in the Lender Warrant, and is not exercisable until August 17, 2022.

The warrants were assessed in accordance with ASC 470 and ASC 815 Derivatives and were deemed to represent bifurcated derivative instruments that should be recorded as liabilities in the Condensed Consolidated Balance Sheets.

The Lender Warrant has a five -year term, an initial exercise price of $ 6.00 per share, subject to adjustments in the Lender Warrant, and was not exercisable until August 17, 2022.

The Company performed a Black-Scholes valuation of the warrants as of the issuance date, resulting in a fair value of $ 2.4387 per warrant.

In recording the warrant liability, the Company recorded a debt discount associated with each of the Acquisition and Consolidation Term Loans in an amount of $ 2,032 and $ 2,190 , respectively.

These amounts are being amortized straight-line through interest expense over the life of the loans, resulting in incremental interest expense of $ 1,267  during the year ended December 31, 2022.

These amounts are being amortized straight-line through interest expense over the life of the loans, resulting in incremental interest expense of $ 1,443 and $ 1,268 for the years ended December 31, 2023 and 2022 , 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;

provided that such holder may not require the Company or its successor entity to repurchase the Lender Warrant for the Black Scholes value in connection with a fundamental transaction that is not approved by the Company’s Board of Directors, and therefore not within the Company’s control.

Effective June 30, 2022, the Company amended the terms of the Lender Warrant to remove the holder’s option to exercise such warrant on a cashless basis utilizing the volume weighted average price (“VWAP”) of the Company’s common stock on the trading day immediately preceding the date of a notice of cashless exercise in certain circumstances, and remove the condition to exercising such warrant that the Company’s shareholders approve the exercise thereof (which has already been obtained).

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

The amendments to the Lender Warrant also extend the term of such warrants for an additional one year, such that the Lender Warrant will expire on February 17, 2028.

The foregoing amendments to the Lender Warrant caused such warrants to be accounted for as equity instruments in the Company’s Consolidated Financial Statements.

On October 31, 2022, the Borrowers and Slipstream amended the Credit Agreement to provide the Borrowers with a $ 2,000 term loan ("Term Loan ( 2022 )"), the net proceeds of which are being used by the Company to accelerate an active software development project with potential to expand SaaS revenues associated with an existing customer. The term loan has an annual interest rate of 12.5 % and matures on September 1, 2023.

Commencing on February 1, 2023, the Borrowers will make monthly installment payments of approximately $ 270 until the maturity date, consisting of principal and interest sufficient to fully amortize the term loan through the maturity date.

Loan and Security Agreement History

Prior to the execution of the Credit Agreement, Borrower and Slipstream were parties to a Loan and Security Agreement.

On March 7, 2021, On February 28, 2021, January 31, 2021, December 31, 2020, November 30, 2020, and September 29, 2020, the parties entered into several amendments to the Loan and Security Agreement to amend the automatic conversion date of the Special Loan and, later, to eliminate the conversion feature.

Each amendment extended the automatic conversion date of the Special Loan.

The Company paid no fees in exchange for these extensions, with the exception of the March 7, 2021 extension which resulted in the Company recording of $ 133 of incremental debt discount, a net gain of $ 26 via the extinguishment of the Special Loan, and expense of $ 69 of costs incurred with third parties as a result of extinguishment of the Special Loan, modification of the New Term Loan, and extinguishment of the Disbursed Escrow Loan.

Secured Disbursed Escrow Promissory Note

The Fourth Amendment to the Loan and Security Agreement included entry into a Secured Disbursed Escrow Promissory Note between the Company and Slipstream, and, effective June 30, 2018, we drew $ 264 in conjunction with our exit from a previously leased operating facility.

The principal amount of the Secured Disbursed Escrow Promissory Note bears no interest.

Upon entry into the Prior Credit Agreement on March 7, 2021, this note was converted into Disbursed Escrow Conversion Shares, with elimination of the debt recorded as an equity issuance within the Statements of Shareholders' Equity.

SBA Paycheck Protection Program Loan

On April 27, 2020, the Company entered into a Promissory Note with Old National Bank (the “Promissory Note”), which provided for an unsecured loan of $ 1,552 (the “PPP Loan”) pursuant to the Paycheck Protection Program under the Coronavirus Aid, Relief, and Economic Security Act and applicable regulations (the “CARES Act”).

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

On January 11, 2021, the Company received a notice from Old National Bank that the full principal amount of the PPP Loan and the accrued interest have been forgiven, resulting in a gain of $ 1,552 during the year-ended December 31, 2021.

Amended and Restated Seller Note from acquisition of Allure

The Amended and Restated Seller Note represented a note payable due from Allure to Seller, under a pre-existing Seller Note which was amended and restated to a reduced amount of $ 1,637 through the Stock Purchase Agreement and a subsequent net working capital adjustment.

That debt accrued interest at 3.5 % per annum, and required us to make quarterly payments of interest only through February 19, 2020, on which date the promissory note matured and all remaining amounts owing thereunder became due.

On February 20, 2020, Creative Realities, Inc.

and Allure made a demand for arbitration against Seller for ( 1 ) breach of contract, ( 2 ) indemnification, and ( 3 ) fraudulent misrepresentation under the Allure Purchase Agreement.

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

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

The foregoing amendments to the Lender Warrant caused such warrants to be accounted for as equity instruments in the Company’s Consolidated Financial Statements.

On October 31, 2022, the Borrowers and Slipstream amended the Credit Agreement to provide the Borrowers with a $ 2,000 term loan ("Term Loan ( 2022 )"), the net proceeds of which were used by the Company to accelerate an active software development project with potential to expand SaaS revenues associated with an existing customer.

The Term Loan ( 2022 ) had an annual interest rate of 12.5 % and matured on September 1, 2023.

Commencing on February 1, 2023, the Company made 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.

As of December 31, 2023, the Term Loan 2022 has been repaid in full to Slipstream.

COMMITMENTS AND CONTINGENCIES

On August 2, 2019, the Company filed suit in Jefferson Circuit Court, Kentucky, against a supplier of the Company’s wholly owned subsidiary, Allure Global Solutions, Inc.

(“Allure”) for breach of contract, breach of warranty, and negligence with respect to equipment installations performed by such supplier for an Allure customer. On October 10, 2019, the Allure customer that is the basis of our claim above sent a demand to the Company for payment of $ 3,200 as settlement for an alleged breach of contract related to hardware failures of equipment installations performed by Allure between November 2017 and August 2018.

On March 10, 2023, the Company, the supplier and the Allure customer reached a Settlement Agreement and Release of Claims ("Settlement Agreement").

Pursuant to the Settlement Agreement, the Company is obligated to pay $733;

however, its insurer has agreed to pay $ 700 of that amount. 

Thus, the Company is obligated to pay $ 33 of the settlement amount.

On February 20, 2020, Creative Realities, Inc.

and Allure made a demand for arbitration against Seller for ( 1 ) breach of contract, ( 2 ) indemnification, and ( 3 ) fraudulent misrepresentation under the Allure Purchase Agreement.

This demand included a claim for the right to offset the amounts owing under the Amended and Restated Seller Note due February 20, 2020.

The Company did not pay the Amended and Restated Seller Note on its maturity date.

On February 27, 2020, Seller sent the Company a notice of breach for failure to pay the Amended and Restated Seller Note on the maturity date of February 20, 2020 and demanding immediate payment.

On September 11, 2020, the Company served a First Amended Demand in the arbitration with Seller, and on November 5, 2020, Seller pre-served a Motion for Summary Disposition in the arbitration demanding payment of the Amended and Restated Seller Note and accrued interest.

The Company recorded a gain on settlement of obligations of $ 1,624 during 2021 upon settlement.

Except as noted above, the Company is not party to any other material legal proceedings, other than ordinary routine litigation incidental to the business, and there were no other such proceedings pending during the period covered by this Annual Report.

Settlement of obligations

There were no individually material settlements during the year-ended December 31, 2022.

During 2021, (i) the full principal amount of the PPP Loan and the accrued interest of $ 1,552 were forgiven and recorded as a gain on settlement, (ii) the Company settled the Amended and Restated Seller Note and related accrued interest for $ 100 , recording a gain on settlement of $ 1,624 , representing $ 1,538 related to the Amended and Restated Seller Note and $ 86 of related interest thereon, and (iii) the statute of limitations passed related to the remaining liability on a lease abandoned by the Company in 2015, resulting in a gain of $ 256 . During the year ended December 31, 2021 , the Company settled and/or wrote off obligations of $ 348 for aggregate cash payments of $ 139 and recognized a gain of $ 209 related to legacy accounts payable deemed to no longer be legal obligations to vendors.

BUSINESS COMBINATION

On November 12, 2021, the Company and Reflect Systems, Inc., or “Reflect,”

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

and February 11, 2023, the “Merger Agreement") pursuant to which a direct, wholly owned subsidiary of Creative Realities, CRI Acquisition Corporation, or “Merger Sub,”

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

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

Reflect offers digital signage platforms, including ReflectView, a platform used by companies to power hundreds of thousands of active digital displays.

Subject to the terms and conditions of the Merger Agreement, upon the closing of the Merger, Reflect stockholders as of the effective time of the Merger collectively received from the Company, in the aggregate, the following Merger consideration:

(i) $ 16,166 in cash, (ii) 777,778 shares of common stock of Creative Realities (valued based on an issuance price of $ 6 per share) (the “CREX Shares”), (iii) the Secured Promissory Note (as described below), and (iv) supplemental cash payments (the “Guaranteed Consideration”), if any, payable on or after February 17, 2025 ( subject to the Extension Option described below, the “Guarantee Date”), in an amount by which the value of the CREX Shares on such anniversary is less than $ 19.20 per share, or if certain customers of Reflect collectively achieve over 85,000 billable devices online at any time on or before December 31, 2022, is less than $ 21.60 per share (such applicable amount, the “Guaranteed Price”), multiplied by the amount of CREX Shares held by the Reflect stockholders on the Guarantee Date (subject to the Extension Option described below). 

At or before December 31, 2022, the condition of certain customers of Reflect collectively to achieve over 85,000 billable devices online was not met. 

Accordingly, the contingent cash payment amount was reduced at December 31, 2022 from $ 21.60 per share to $ 19.20 per share, a reduction of $ 2.40 per share.   

The “Extension Threshold Price”

means the average closing price per share of Creative Realities common stock as reported on the Nasdaq Capital Market (or NYSE) in the fifteen ( 15 ) consecutive trading day period ending February 2, 2025.

If the Extension Threshold Price is less than 80 % of the Guaranteed Price, then the Guaranteed Price will be increased by $ 3.00 per share.

In connection with the Merger, the Company adopted a Retention Bonus Plan and raised capital to, among other things, pay the cash portion of the Merger consideration. The Retention Bonus Plan is described below.

Retention Bonus Plan

On February 

17, 2022, in connection with the closing of the Merger (the “Closing”), the Company adopted a Retention Bonus Plan, pursuant to which the Company is required to pay to key members of Reflect’s management team an aggregate of $ 1,334 in cash, which was paid 50 % at the Closing, and subject to continuous employment with Reflect or Creative Realities, 25 % will be paid on February 17, 2023 ( the one -year anniversary of Closing) and 25 % will be paid on February 17, 2024 ( the two -year anniversary of the Closing).

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

The Retention Bonus Plan also requires the Company to issue Common Stock having an aggregate value of $ 667 to the plan participants as follows:

50 % of the value of such shares were issued at the Closing, and subject to continuous employment with Reflect or Creative Realities, 25 % of the value of such shares will be issued on February 17, 2023 ( the one -year anniversary of Closing) and the remaining 25 % of the value of such shares will be issued on February 17, 2024 ( the two -year anniversary of the Closing).

The shares issued on the Closing were valued at $ 6.00 per share, and the shares to be issued after the Closing will be determined based on dividing the value of shares issuable on such date divided by the trailing 10 -day volume weighted average price (VWAP) of the shares as of such date as reported on the Nasdaq Capital Market.

Upon the resignation of a participant’s employment for “good reason,”

or termination of the employment of a participant without “cause,”

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

Any amounts unpaid by reason of a lapse in continuous employment or otherwise will be reallocated among the remaining Retention Bonus Plan participants.

Purchase price 

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

(in thousands)

Consideration

Cash consideration for Reflect stock (1)

$ 16,664  

Cash consideration for Retention Bonus Plan (2)

Common stock issued to Reflect shareholders (3)

Common stock issued to Retention Bonus Plan (4)

Secured Promissory Note (5)

Earnout liability (6)

10,862  

Total consideration

36,360  

Vendor deposit with the Company (7)

Cash acquired (8)

Net consideration transferred

$ 34,730  

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

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

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

( 4 ) Company common stock issued to fund the Retention Bonus Plan per Merger Agreement

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

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

( 6 ) Represents an estimate of the fair value of the Guaranteed Consideration as of the Merger, which, if any, is payable on or after February 17, 2025 ( subject to the Extension Option), in an amount by which the value of the CREX Shares on such anniversary is less than $ 19.20 per share, or if certain customers of Reflect collectively achieve over 85,000 billable devices online at any time on or before December 31, 2022, is less than $ 21.60 per share (such applicable amount, the “Guaranteed Price”), multiplied by the amount of CREX Shares held by the Reflect stockholders on the Guarantee Date (subject to the Extension Option), subject to the terms of the Merger Agreement.

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

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

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

( 8 ) Represents the Reflect cash balance acquired at Closing.

The Company incurred $ 444 of direct transaction costs related to the Reflect Merger for the year ended December 31, 2022.

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

The Company accounted for the Merger using the acquisition method of accounting.

The preliminary allocation of the purchase price is based on estimates of the fair value of assets acquired and liabilities assumed as of February 17, 2022.

The Company is continuing to obtain information to determine the acquired assets and liabilities, including tax assets, liabilities and other attributes.

The components of the preliminary purchase price allocation, inclusive of measurement period adjustments recorded by the Company during the year ended December 31, 2022, are as follows:

(in thousands)

Accounts receivable

$ 1,359  

Prepaid expenses & other current assets

Property and equipment

Operating right of use assets

Identified intangible assets:

Definite-lived trade names

Definite-lived developed technology

Definite-lived customer relationships

11,040  

Definite-lived noncompete agreements

18,935  

Accounts payable

Accrued expenses

Customer deposits

Deferred revenues

Current maturities of operating leases

Long-term obligations under operating leases

Other liabilities

Net consideration transferred

$ 34,730  

The Company engaged a third -party valuation specialist to assist in the identification and calculation of the fair value of those separately identifiable intangible assets.

The Company completed its valuation procedures by asset utilizing the following approaches:

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

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

( 2 ) Trade name asset represents the “Reflect”

brand name as marketed primarily as a full services digital software solution, marketed in numerous verticals with the exception of food service.

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

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

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

The Company is amortizing the identifiable intangible assets on a straight-line basis over the weighted average lives ranging from 2 to 10 years as outlined in the table below. 

The table below sets forth the valuation and amortization period of identifiable intangible assets:

(in thousands)

Identifiable definite-lived intangible assets:

Developed technology

Customer relationships

11,040  

$ 17,160  

The Company estimated the preliminary fair value of the acquired property, plant and equipment using a combination of the cost and market approaches, depending on the component.

The preliminary fair value of such property, plant and equipment is $ 96 .

The excess of the purchase price over the preliminary estimated fair value of the tangible net assets and identifiable intangible assets acquired was recorded as goodwill and is subject to change upon final valuation.

The factors contributing to the recognition of the amount of goodwill are based on several strategic and synergistic benefits that are expected to be realized from the Merger.

These benefits include a comprehensive portfolio of iconic customer brands, complementary product offerings, enhanced national footprint, and attractive synergy opportunities and value creation.

None of the goodwill is expected to be deductible for income tax purposes.

The following unaudited pro forma information presents the combined financial results for the Company and Reflect as if the Merger had been completed at the beginning of the Company’s prior year, January 1, 2021.

(in thousands, except earnings per common share)

$ 30,680  

Earnings per common share

$ 0.06  

The information above does not include the pro forma adjustments that would be required under Regulation S- X for pro forma financial information and does not reflect future events that may occur after December 31, 2021 or any operating efficiencies or inefficiencies that may result from the Merger and related financings.

Therefore, the information is not necessarily indicative of results that would have been achieved had the businesses been combined during the periods presented or the results that the Company will experience going forward.

We have not included disaggregated information for Reflect on a standalone basis in the current year for either revenue or net income as the integration activities undertaken by the Company have prevented this information from being useful to financial statement readers.

Reflect Systems, Inc.

(in thousands)

$ 12,243  

Net (loss) income

Income tax expense consisted of the following:

On August 2, 2019, the Company filed suit in Jefferson Circuit Court, Kentucky, against a supplier of the Company’s wholly owned subsidiary, Allure, for breach of contract, breach of warranty, and negligence with respect to equipment installations performed by such supplier for an Allure customer.

On October 10, 2019, the Allure customer that is the basis of our claim above sent a demand to the Company for payment of $ 3,200 as settlement for an alleged breach of contract related to hardware failures of equipment installations performed by Allure between November 2017 and August 2018.

On March 10, 2023, the Company, the supplier and the Allure customer reached a Settlement Agreement and Release of Claims ("Settlement Agreement").

Pursuant to the Settlement Agreement, the Company was obligated to pay $733;

however, its insurer agreed to pay $ 700 of that amount.

Thus, the Company paid $ 33 of the settlement amount in April 2023.

Income tax expense consisted of the following:

Year ended December 31,

1 unchanged sentence

State income tax

$ ( 51 )  

Deferred tax expense - federal

( 30 )  

Deferred tax benefit –

$ ( 79 )  

Deferred tax expense (benefit) – state

The income tax expense includes federal and state income taxes currently payable and those deferred or prepaid because of temporary differences between financial statement and tax bases of assets and liabilities.

3 unchanged sentences

Federal statutory rate

21.00 %  

21.00 % 21.00 %

State taxes, net of federal benefit

( 2.02 )%  

1.28 % ( 2.02 )%

Foreign rate differential

( 2.51 )%  

PPP Loan Forgiveness

1.05 % ( 2.51 )%

Fair value of Warrant Liability/Contingent Consideration

( 79.66 )%  

( 6.48 )% ( 79.66 )%

Discrete items, Transaction items, and Other

( 2.37 )%  

( 2.13 )% ( 2.37 )%

Changes in valuation allowance

69.60 %  

( 16.53 )% 69.60 %

Effective tax rate

4.04 %  

( 1.81 )% 4.04 %

The net deferred tax assets and liabilities recognized in the accompanying Consolidated Balance Sheets, determined using the income tax rate applicable to each period, consist of the following:

3 unchanged sentences

Right-of-use Asset

( 253 )  

( 254 ) ( 253 )

Right-of-use Liability

IRC 163(j) Interest Deduction

IRC 163(j) Interest Carryforward

Debt issuance costs

2 unchanged sentences

Net foreign carryforwards

US net operating loss and credit carryforwards

37,953  

35,448  

( 3,737 )  

US net operating loss and contribution carryforwards

38,010 37,953

( 3,818 ) ( 3,737 )

Total deferred tax liabilities, net

43,391  

42,186  

44,217 43,391

Valuation allowance

( 43,419 )  

( 44,290 ) ( 43,419 )

Net deferred tax liabilities

$ ( 28 )  

$ ( 73 ) $ ( 28 )

As of December 31, 2023 , the Company had no reserves recorded as a liability for unrecognized tax benefits for U.S.

1 unchanged sentence

There were no unrecognized tax benefits as of December 31, 2023 that, if recognized, would affect the tax rate.

 It is the Company’s policy to accrue interest and penalties related to liabilities for income tax contingencies in the provision for income taxes.

As of December 31, 2023 , the Company had no accrued interest or penalties related to uncertain tax positions.

1 unchanged sentence

As of December 31, 2023 , the Company has federal and state net operating loss carryforwards expiring between 2024 and 2043, $ 13,808 of which has an indefinite carryforward period.

The federal statute of limitations remains open for tax years 2019  through 2021 and state tax jurisdictions generally have statutes of limitations open for tax years 2018 through 2021.

The federal statute of limitations remains open for tax years 2019 through 2022 and state tax jurisdictions generally have statutes of limitations open for tax years 2019 through 2022.

We have substantial NOLs that are limited in usage by IRC Section 382.

2 unchanged sentences

Based on the history of losses of the Company, there continues to be a full valuation allowance against the net deferred tax assets of the Company.

A summary of outstanding warrants for the years ended 

December 31, 2022 and 2021 is included below:

A summary of outstanding warrants for the years ended December 31, 2023 and 2022 is included below:

Year Ended December 31, 2023

3 unchanged sentences

Balance January 1, 2023

1,367,737  

$ 13.44  

Warrants issued

1,950,502  

Warrants exercised

( 1,950,502 )  

5,824,027 $ 6.56 4.21

Warrants expired

( 130,712 )  

Warrants reclassified

4,587,002  

Balance December 31, 2022

5,824,027  

$ 6.56  

Year Ended December 31, 2022

Warrants (Liability)

Average Exercise

Contractual Life

Balance January 1, 2022

Warrants issued

4,587,002  

Warrants reclassified

( 4,587,002 )  

( 4.90 )  

( 1,237,025 ) 12.70 -

Balance December 31, 2023

4,587,002 $ 4.90 4.11

Year Ended December 31, 2022

3 unchanged sentences

Balance January 1, 2022

1,475,633  

$ 13.86  

1,367,737 $ 13.44 1.73

Warrants issued

1,950,502 4.60 5.00

Warrants exercised

( 1,950,502 ) 4.60 4.86

Warrants expired

( 107,896 )  

( 130,712 ) 10.44 -

Warrants reclassified

4,587,002 4.90 4.73

Balance December 31, 2022

1,367,737  

$ 13.44  

On February 3, 2022, the Company entered into a Securities Purchase Agreement with a purchaser (the “Purchaser”), pursuant to which the Company agreed to issue and sell to the Purchaser, in a private placement priced at-the-market under Nasdaq rules, (i) 438,334 shares (the “Shares”) of the Company’s common stock, par value $ 0.01 per share (the “Common Stock”) and accompanying warrants to purchase an aggregate of 438,334 shares of Common Stock, and (ii) pre-funded warrants to purchase up to an aggregate of 1,950,502 shares of Common Stock (the “Pre-Funded Warrants”) and accompanying warrants to purchase an aggregate of 1,950,502 shares of Common Stock (collectively, the “Private Placement”).

The accompanying warrants to purchase Common Stock are referred to herein collectively as the “Common Stock Warrants.”

Under the Securities Purchase Agreement, each Share and accompanying warrants to purchase Common Stock were sold together at a combined price of $ 4.605 , and each Pre-Funded Warrant and accompanying warrants to purchase Common Stock were sold together at a combined price of $ 4.6047 , for gross proceeds of approximately $ 11,000 , before deducting placement agent fees and estimated offering expenses payable by the Company.

In the first quarter of 2022, each of the Pre-Funded Warrants were exercised.

The Common Stock Warrants expire 

five years from the date of issuance.

The Company evaluated the Pre-Funded Warrants and concluded that they met the criteria to be classified within stockholders’

equity, with proceeds recorded as common stock and additional paid-in-capital.

The Company evaluated the Common Stock Warrant and concluded they did not meet the criteria to be classified within stockholders’

The Common Stock Warrant included provisions which could result in a different settlement value for the Common Stock Warrant depending on the registration status of the underlying shares.

Because these conditions were not an input into the pricing of a fixed-for-fixed option on the Company’s ordinary shares, the Common Stock Warrant was not considered to be indexed to the Company’s own stock.

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

At the date of issuance, the Company performed a Black-Scholes valuation of the warrants, resulting in a fair value of $ 3.2781 per warrant.

The Company recorded a gain on the fair value of these warrants of $ 4,951 in the Consolidated Statements of Operations for the year ended December 31, 2022, which reflects the change in fair value from granting of the warrants through June 30, 2022, the effective date of the warrant agreement amendment.

On February 17, 2022, in connection with the Credit Agreement with Slipstream, the Company issued to Slipstream 1,731,499 warrants with an exercise price of $ 6.00 per share, which expire five years from the date of issuance (the “Lender Warrant”).

These warrants are not exercisable until 180 days after the issuance date.

The common shares underlying these warrants have not yet been registered for resale under the Securities Act of 1933, which provides Slipstream with an option for cashless exercise once the warrant becomes exercisable until such time as such registration occurs.

The Lender Warrant expired five years from the date of issuance.

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

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

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

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

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

In recording the warrant liability, the Company recorded an increase in debt discount in the Consolidated Balance Sheets associated with the issuance of the warrants of $ 4,223 , which is being amortized through interest expense in the Consolidated Statements of Operations over the life of the Acquisition Term Loan and Consolidation Term Loan.

The Company recorded a gain on the fair value of these warrants of $ 2,302 in the Consolidated Statements of Operations for the year ended December 31, 2022, which reflects the change in fair value from granting of the warrants through June 30, 2022, the effective date of the warrant agreement amendment.

On February 17, 2022, in connection with obtaining a waiver of certain restrictions in investment documents between an investor and the Company in order to consummate the financing contemplated by the Credit Agreement, the Company paid consideration to such investor in the form of a warrant (the “Purchaser Warrant”) to purchase 466,667 shares of Company common stock in an at-the-market offering under Nasdaq rules.

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

The exercise price of the Purchaser Warrant is $ 4.23 per share, and the Purchaser Warrant is not exercisable until August 17, 2022.

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

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

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

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

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

In recording the warrant liability, the Company recorded an expense in the Consolidated Statements of Operations associated with the issuance of the Purchaser Warrant of $ 1,212 .

The Company recorded a gain on the fair value of the Purchaser Warrant of $ 649 in the Consolidated Statements of Operations for the year ended December 31, 2022, which reflects the change in fair value from granting of the warrants through June 30, 2022, the effective date of the warrant agreement amendment.

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

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

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

5,824,027 $ 6.56 4.21

The accompanying warrants to purchase Common Stock are referred to herein collectively as the “Common Stock Warrants.” Under the Securities Purchase Agreement, each Share and accompanying warrants to purchase Common Stock were sold together at a combined price of $ 4.605 , and each Pre-Funded Warrant and accompanying warrants to purchase Common Stock were sold together at a combined price of $ 4.6047 , for gross proceeds of approximately $ 11,000 , before deducting placement agent fees and estimated offering expenses payable by the Company.

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

The Common Stock Warrants expire five years from the date of issuance.

The Company evaluated the Pre-Funded Warrants and concluded that they met the criteria to be classified within stockholders’ equity, with proceeds recorded as common stock and additional paid-in-capital.

The Company evaluated the Common Stock Warrants and concluded they do not meet the criteria to be classified within stockholders’ equity.

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

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

At the date of issuance, the Company performed a Black-Scholes valuation of the 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 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 Consolidated Statement of Operations for the year ended December 31, 2022.

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

The Lender Warrants were 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 provided Slipstream with an option for cashless exercise once the Lender Warrants became exercisable until such time as such registration occurs.

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

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

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 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 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 Consolidated Statement of Operations for the year ended December 31, 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 Warrants”) 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 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 were not exercisable until August 17, 2022.

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

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

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 Consolidated Balance Sheets at fair value, with subsequent changes in their respective fair values recognized in the Consolidated Statements of Operations at each reporting date.

At the date of issuance, the Company performed a Black-Scholes valuation of the 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 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 Consolidated Statement of Operations for the year ended December 31, 2022.

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 extended 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.

As a result of the extension in term provided in exchange for the amendment, the Company reassessed the fair value of each of the Common Stock, Lender and Purchaser Warrants, resulting in the Company recording a loss on the fair value of these warrants of $ 345 in the Consolidated Statements of Operations for the year ended December 31, 2022.

The foregoing amendments to the warrants resulted in such warrants to be accounted for as equity instruments in the Company’s Consolidated Financial Statements.

As such, following recording the gains and losses with respect to these warrant amendments, the Company reclassified the warrant liability of $ 5,709 from noncurrent liabilities to additional paid-in-capital.

These amounts are reflected as additional paid-in-capital in the Consolidated Balance Sheet as of December 31, 2022.

As of December 31, 2022 , there remained outstanding 68,508 warrants which contain weighted average anti-dilution protection.

During 2022, those warrants were subject to a downward adjustment in their strike price following completion of the Company’s issuance of common stock or common stock equivalents in ( 1 ) the Private Placement, ( 2 ) the Credit Agreement, and ( 3 ) the Waiver, each in February 2022.

The strike prices prior to adjustment ranged from $ 16.83 to $ 17.31 and were adjusted to between $ 10.23 and $ 10.44 , resulting in the Company recording an increase in additional paid-in-capital of $ 31 in the Consolidated Statements of Shareholders' Equity for the year ended December 31, 2022. 

The remaining weighted-average exercise price and weighted average contractual life of warrants subject to weighted average anti-dilution protection is $ 10.41 and 0.24 years, respectively, as of December 31, 2022 .

As of December 31, 2021 , there remained outstanding 307,123 warrants which contain weighted average anti-dilution protection.

During 2020, those warrants were subject to a downward adjustment in their strike price following completion of the Company’s issuance of common stock via at-the-market offering activities.

The strike prices prior to adjustment ranged from $ 18.27 to $ 18.75 and were adjusted to between $ 17.40 and $ 17.88 .

The remaining weighted-average contractual life of warrants subject to weighted average anti-dilution protection is 1.71 years as of December 31, 2021 .

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

As such, the Company reclassified the warrant liability from noncurrent liabilities to additional paid-in-capital as of June 30, 2022.

These amounts are reflected as additional paid-in-capital in the Consolidated Balance Sheet as of December 31, 2022.

STOCK-BASED COMPENSATION

5 unchanged sentences

566,673 6.63 $ 7.42 566,673 $ 7.42

566,673  

352,227  

$ 7.47  

96,237  

$ 25.37  

662,910  

$ 10.02  

448,464  

96,125 2.03 25.22 96,125 25.22

662,798 5.96 $ 10.00 662,798 $ 10.00

Performance Vesting Options

3 unchanged sentences

240,000 6.42 $ 7.59 240,000 $ 7.59

240,000  

$ 7.59  

80,000  

$ 7.59  

240,000  

$ 7.59  

80,000  

Market Vesting Options

2 unchanged sentences

$0.01 - $4.00

633,334  

$ 3.00  

733,334 1.13 $ 3.00 - $ -

633,334  

$ 3.00  

Market Vesting Options

3 unchanged sentences

Balance, December 31, 2022

689,603  

266,667  

$ 7.59  

633,334  

633,334 3.00 662,910 10.02 240,000 $ 7.59

100,000 3.00 - - - -

Forfeited or expired

( 26,712 )  

( 26,667 )  

- - ( 112 ) 162.00 - -

Balance, December 31, 2023

633,334  

662,891  

240,000  

$ 7.59  

The weighted average remaining contractual life for options exercisable is 6.7  years as of December 31, 2022 .

733,334 3.00 662,798 10.00 240,000 $ 7.59

The weighted average remaining contractual life for options exercisable is 6.1 years as of December 31, 2023 .

Valuation Information for Stock-Based Compensation

1 unchanged sentence

Amendment to Performance Options

On June 1, 2020, Rick Mills, CEO, and Will Logan, CFO, were issued ten -year options to purchase 160,000 and 80,000 shares of common stock (the “Performance Options”), respectively, which vest in equal installments over a three -year period ( 2020 - 2022 ), subject to satisfying the Company revenue target and EBITDA (earnings before interest, taxes, depreciation and amortization) targets for the applicable year.

On June 1, 2020, Rick Mills, CEO, and Will Logan, CFO, were issued ten -year options to purchase 160,000 and 80,000 shares of common stock (the “Performance Options”), respectively, which vest in equal installments over a three -year period ( 2020 - 2022 ), subject to satisfying the Company revenue targets and EBITDA (earnings before interest, taxes, depreciation, and amortization) targets for the applicable year.

In each of calendar years 2020, 2021 and 2022, one - third of the total shares may vest (if the revenue and EBITDA targets are met), and the shares that are subject to vesting each year are allocated equally to each of the revenue and EBITDA targets for such year.

The Performance Options includes a catch-up provision, where any options that did not vest during a prior year due to the Company’s failure to meet a prior revenue or EBITDA target may vest in a subsequent vesting year if the revenue or EBITDA target, as applicable, is met in the future year.

On June 15, 2022, the Board approved of an amendment to the Performance Options to provide that the revenue target for the calendar year 2022 set forth therein ($ 38,000 ) is eliminated, and the remaining shares that are available for vesting under the Performance Options ( 106,667 unvested shares for Mr.

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

On June 15, 2022, the Board approved of an amendment to the Performance Options to provide that the revenue target for the calendar year 2022 set forth therein ($ 38,000 ) was eliminated, and the remaining shares that are available for vesting under the Performance Options ( 106,667 unvested shares for Mr.

Mills and 53,334 for Mr.

Logan) (including the unvested portions of shares based on the satisfaction of the revenue targets for 2020 and 2021 by virtue of the catch-up provisions in the Performance Options) will fully vest upon the achievement of an updated EBITDA target for calendar year 2022 of $ 3,600 .

The Performance Options state that the calculation of EBITDA set forth in the Performance Options shall be calculated in a form consistent with the Company’s 2022 approved budget, which

(i) excludes any impact on EBITDA of:

The Performance Options state that the calculation of EBITDA set forth in the Performance Options shall be calculated in a form consistent with the Company’s 2022 approved budget, which

(i) 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),

1 unchanged sentence

(ii) includes deductions related to any cash or stock bonuses paid or payable to any employees of the Company for services provided in calendar year 2022 (even if such bonuses are actually paid after calendar year 2022 ), including bonuses paid pursuant to the terms of the 2022 Cash Bonus Plan (as described below) (collectively, the “EBITDA Calculations”).

The exercise price of the foregoing options is $ 7.59 per share, the closing price of the Company’s common stock on the date of issuance.

(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.

The exercise price of the foregoing options is $ 7.59 per share, the closing price of the Company’s common stock on the date of issuance (as adjusted by the Company's 1 -for- 3 reverse stock split in March 2023).

The options were issued from the 2014 Stock Incentive Plan.

The fair value of the options on the grant date was $ 5.61 and was determined using the Black-Scholes model.

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

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

For the year ended December 31, 2022, the Company recognized $ 849  in stock-based compensation expense related to the Performance Options, net of a benefit of $ 50 recorded for forfeiture awards, as the Company achieved the specified performance target for the performance period.

Issuance of New Options

Issuance of Options

On June 15, 2022, Messrs.

Mills and Logan received ten -year options to purchase 333,334 and 200,000 shares of common stock, respectively (the “New Options”).

The New Options are eligible to vest at any time on or prior to February 17, 2025 if the trailing 10 -trading day volume-weighted average price (“VWAP”) of the Company’s common stock, as reported on the Nasdaq Capital Market, exceeds the share price targets below, subject to such executive serving the Company as a director, officer, employee or consultant at such time:

Mills and Logan received ten -year options to purchase 333,334 and 200,000 shares of common stock, respectively (the “New Options”).

The New Options are eligible to vest at any time on or prior to February 17, 2025 if the trailing 10 -trading day VWAP of the Company’s common stock, as reported on the Nasdaq Capital Market, exceeds the share price targets below, subject to such executive serving the Company as a director, officer, employee or consultant at such time:

Share Price Targets

$ 6.00  

$ 9.00  

$ 12.00  

$ 15.00  

$ 18.00  

$ 6.00 $ 9.00 $ 12.00 $ 15.00 $ 18.00 Price

Mills Shares Vested

16,667  

33,334  

50,000  

66,667  

83,333  

333,334  

16,667 33,334 50,000 66,667 83,334 83,334 333,334

Logan Shares Vested

10,000  

20,000  

30,000  

40,000  

50,000  

200,000  

10,000 20,000 30,000 40,000 50,000 50,000 200,000

Percentage of Shares Vested

The “Guaranteed Price”

has the meaning ascribed to such term in the Merger Agreement, which means $ 19.20 per share.

The exercise price of the New Options is $ 3.00 per share, which exceeds the closing price of the Company’s common stock on the date of issuance.

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

An additional 100,000 options with identical market vesting restrictions were issued to non-executives during the year ended December 31, 2022.

5 % 10 % 15 % 20 % 25 % 25 %

The “Guaranteed Price” has the meaning ascribed to such term in the Merger Agreement.

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 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.

The fair value of the options on the grant date varied between $ 0.63 and $ 1.11 per award as determined using the Monte Carlo model.

4 unchanged sentences

Dividend yield

At December 31, 2022, the Company evaluated the probability of achieving the share price targets in each tranche based, in part, on work performed by the Company’s third party valuation specialist in conjunction with evaluating the equity guarantee contingent liability.

At the grant date, 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 contingent consideration.

As a result of that evaluation of probability, during the year-ended December 31, 2023, the Company recorded $ 13 of compensation expense.

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

Should any target not be achieved, any amounts recorded as expense in the Consolidated Statements of Operations related to that tranche would be reversed.

On November 17, 2021, Creative Realities’

Board of Directors updated its director compensation plan to compensate non-officer directors resulting in the Company granting 10 -year options to purchase an aggregate of 85,000 shares of its common stock to non-employee directors of the Company under the Company’s 2014 Stock Incentive Plan (the “Plan”).

One- third of the options vested immediately, with the half of the remaining options vesting at each of the first and second anniversaries of the grant date.

The options have an exercise price of $ 6.63 , the market value of the Company’s common stock on the grant date.

On November 17, 2021, Creative Realities’ Board of Directors updated its director compensation plan to compensate non-officer directors resulting in the Company granting 10 -year options to purchase an aggregate of 85,000 shares of its common stock to non-employee directors of the Company under the Company’s 2014 Stock Incentive Plan (the “Plan”).

One- third of the options vested immediately, with half of the remaining options vesting at each of the first and second anniversaries of the grant date.

The options have an exercise price of $ 6.63 , the market value of the Company’s common stock on the grant date.

The fair value of the options on the grant date was $ 5.23 and was determined using the Black-Scholes model.

4 unchanged sentences

Dividend yield

On June 1, 2020 the Board of Directors of the Company granted 10 -year options to purchase an aggregate of 526,667 shares of its common stock to employees of the Company subject to shareholder approval of an increase in the reserve of shares authorized for issuance under the Company’s 2014 Stock Incentive Plan (the “Plan”).

On July 10, 2020, the Company held a special meeting of the Company’s shareholders at which the shareholders approved the amendment to the Plan, which increased the reserve of shares authorized for issuance thereunder to 2,000,000 shares.

The options awarded vest over 3 years and have an exercise price of $ 7.59 , the market value of the Company’s common stock on the grant date.

The fair value of the options on the grant date was $ 5.61 and was determined using the Black-Scholes model.

6 unchanged sentences

ASC 718 - 10, Stock Compensation , requires measurement and recognition of compensation expense for all stock-based payments including warrants, stock options, restricted stock grants and stock bonuses based on estimated fair values.

Under the Amended and Restated 2006 Equity Incentive Plan, the Company reserved 573,334 shares for purchase by the Company’s employees and under the Amended and Restated 2006 Non-Employee Director Stock Option Plan the Company reserved 233,334  shares for purchase by the Company’s employees.

There are 3,890 options outstanding under the 2006 Equity Incentive Plan.

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

In August 2018, a special meeting of shareholders was held in which the shareholders voted to amend the Company’s 2014 Stock Incentive Plan to increase the reserve of shares authorized for issuance thereunder, from 7,390,355 shares to 18,000,000 shares.

Following a 1 -for- 30 reverse stock split, the shares authorized for issuance under the Company’s 2014 Stock Incentive Plan was reduced to 600,000 .

On July 10, 2020, the Company’s shareholders approved an amendment to the Company’s 2014 Stock Incentive Plan to increase the reserve of authorized for issuance thereunder to 6,000,000 . 

Following a 1 -for- 3 reverse stock split, the shares authorized for issuance under the Company's 2014 Stock Incentive Plan was reduced to 2,000,000 . There are 1,532,242 options outstanding under the 2014 Stock Incentive Plan.

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

Following a 1 -for- 30 reverse stock split, the shares authorized for issuance under the Company’s 2014 Stock Incentive Plan was reduced to 600,000 .

On July 10, 2020, the Company’s shareholders approved an amendment to the Company’s 2014 Stock Incentive Plan to increase the reserve of authorized for issuance thereunder to 6,000,000 .

Following a 1 -for- 3 reverse stock split, the shares authorized for issuance under the Company's 2014 Stock Incentive Plan was reduced to 2,000,000 .

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

Employee Awards

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

December 31, 2022 and 2021 of $ 1,689 and $ 1,494 , respectively, was included in general and administrative expense in the Consolidated Financial Statements.

At December 31, 2022 , there was approximately $ 843 and $ 1,360 of total unrecognized compensation expense related to unvested share-based awards with time vesting and performance vesting criteria for employees, respectively.

Generally, expense related to the time vesting options will be recognized over the next two - and one -half years and will be adjusted for any future forfeitures as they occur.

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

Compensation expense recognized for the issuance of stock options to employees for the years ended December 31, 2023 and 2022 of $ 383 and $ 1,689 , respectively, was included in general and administrative expense in the Consolidated Financial Statements.

At December 31, 2023 , there was $ 0 and $ 100 of total unrecognized compensation expense related to unvested share-based awards with time vesting and performance vesting criteria for employees, respectively.

Expense related to performance vesting options will be recognized over the next 14 months and will be adjusted for any future forfeitures as they occur.

Non-Employee Awards

Compensation expense recognized for the issuance of stock options, including those options awarded to our Board of Directors, for the years ended 

December 31, 2022 and 2021 of $ 198 and $ 398 , respectively, was included in general and administrative expense in the Consolidated Financial Statements.

At December 31, 2022 , there was approximately $ 62 of total unrecognized compensation expense related to unvested share-based awards with time vesting criteria for non-employee directors.

Generally, expense related to the time vesting options will be recognized over the next two - years and will be adjusted for any future forfeitures as they occur.

Compensation expense recognized for the issuance of stock options, including those options awarded to our Board of Directors, for the years ended December 31, 2023 and 2022 of $ 150 and $ 198 , respectively, was included in general and administrative expense in the Consolidated Financial Statements.

At December 31, 2023 , unrecognized compensation expense related to unvested share-based awards with time vesting criteria for non-employee directors was $ 0 .

The Company engages certain consultants to perform services in exchange for Company common stock.

Shares issued for services were calculated based on the ten ( 10 ) day volume weighted average price (“VWAP”) for the last ten ( 10 ) days during the month of service provided.

During the year ended December 31, 2022, the Company issued or accrued shares issuable in exchange for services in the amount of $ 125 . $ 15 of the compensation expense was recorded as capitalized software.

The Company's lease portfolio is primarily comprised of operating leases for offices.

At the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on whether the contract conveys the right to control the use of identified property or equipment for a period of time in exchange for consideration. 

Leases are classified as operating or finance leases at the commencement date of the lease. 

Operating lease right of use assets and obligations are recognized within the Consolidated Balance Sheets based on the present value of lease payments over the lease term. 

As the implicit rate is generally not readily determinable for most leases, the Company uses an incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. 

The incremental borrowing rate reflects the estimated rate of interest that the Company would pay to borrow on a collateralized basis over a similar term in a similar economic environment. 

Lease expense for operating leases is recognized on a straight-line basis over the lease term. 

Shares issued for services were calculated based on the ten ( 10 ) day volume weighted average price (“VWAP”) for the last ten ( 10 ) days during the month of service provided.

During the year ended December 31, 2023 and December 31, 2022, the Company issued shares issuable in exchange for services in the amount of $ 55 and $ 100 , respectively.

SEGMENT INFORMATION AND SIGNIFICANT CUSTOMERS/VENDORS

Segment Information

We currently operate in one reportable segment, marketing technology solutions.

Substantially all property and equipment is located at our offices in the United States, and a data center located in the United States.

All material sales for the years ended December 31, 2023 and 2022 were in the United States and Canada.

Significant Customers

No customer accounted for more than 10% of revenue for the year ended December 31, 2023.

We had three customers that accounted for 44 % of revenue for the years ended December 31, 2022.

We had two and three customers that in the aggregate accounted for 50 % and 49 % of accounts receivable as of December 31, 2023 and 2022, respectively.

Significant Vendors

We had one vendor that accounted for 38 % and 30 % of outstanding accounts payable at December 31, 2023 and 2022, respectively.

The Company's lease portfolio is primarily comprised of operating leases for office space and finance leases for computer equipment.

Leases are classified as operating or finance leases at the commencement date of the lease.

Leases may include one or more options to renew.

1 unchanged sentence

Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

For the year-ended December 31, 2022 and 2021, the Company recognized $ 579 and $ 379 , respectively, of operating lease expense. 

Operating lease expense is recognized within general and administrative expenses in the Consolidated Statements of Operations.

The following table summarizes the classification of operating and finance lease assets and obligations in the Company's Consolidated Balance Sheet as of December 31, 2023 and 2022:

Operating lease assets

Operating lease right-of-use assets

$ 1,041 $ 1,584

Finance lease assets

Property and equipment, net

Total leased assets

$ 1,187 $ 1,584

Operating lease obligation

Current maturities of operating leases

Finance lease obligation

Accrued expenses and other current liabilities

Operating lease obligation

Long-term obligations under operating leases

Finance lease obligation

Other non-current liabilities

Total lease obligations

$ 1,187 $ 1,584

The following table summarizes the classification of lease expense in the Company's Consolidated Statements of Operations for the years ended December 31, 2023 and 2022:

Operating lease expense:

Operating lease expense

Finance lease expense:

Amortization of right-of-use assets

Interest on lease obligations

Total lease expense

The following table provides lease term and discount rate information related to operating leases as of December 31, 2023:

(in thousands)

Weighted Average Remaining Lease Term

Operating leases (in years)

Weighted average remaining lease term (years)

Operating leases

Finance leases

Weighted average discount rate

Operating leases

10.0 %  

Finance leases

The following table sets forth the scheduled maturities of lease obligations as of December 31, 2023:

(in thousands)

Leases Leases Leases

$ 536 $ 49 $ 585

Total undiscounted cash flows

$ 1,203 $ 160 $ 1,363

Less imputed interest

Present value of lease liabilities

Current maturities of operating leases

Long-term obligations under operating leases

( 162 ) ( 14 ) ( 176 )

Present value of lease liabilities

$ 1,584  

$ 1,041 $ 146 $ 1,187

The following table provides supplemental information related to the Company's Consolidated Statements of Cash Flows for the years ended December 31, 2023 and 2022:

(in thousands)

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

Operating cash flows from operating leases

Operating cash flows paid for operating leases

Operating cash flows paid for finance leases

Financing cash flows paid for finance leases

Right-of-use assets obtained in exchange for new finance lease liabilities

PROFIT-SHARING PLAN

1 unchanged sentence

Associates may contribute up to 15 % of their pretax compensation to the plan subject to IRS limitations.

Beginning on April 1, 2018, the Company began contributing an employer contribution match of 50 % of employee wages up to 6 %, for an effective match of 3 %.

The Company indefinitely suspended the employer match at the end of March 2020 in response to the uncertainty of the COVID- 19 pandemic and reinstated the employer match in October 2021.

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

We have a Registered Retirement Savings Plan for eligible associates in Canada.

Associates may contribute up to 18 % of earned income reported on their tax return in the previous year, subject to legal contribution limits.

Beginning on April 1, 2018, the Company began contributing an employer contribution match of 50 % of employee wages up to 6 %, for an effective match of 3 %.

The Company indefinitely suspended the employer match at the end of March 2020 in response to the uncertainty of the COVID- 19 pandemic and reinstated the employer match in October 2021.

The Company contributed $ 142  and $ 19 to employee retirement plans for the year-ended December 31, 2022 and 2021 , respectively.

SEGMENT INFORMATION AND SIGNIFICANT CUSTOMERS/VENDORS

Segment Information

We currently operate in one reportable segment, marketing technology solutions.

Substantially all property and equipment is located at our offices in the United States, and a data center located in the United States.

All material sales for the years ended 

December 31, 2022 and 2021 were in the United States and Canada.

Significant Customers

We had three ( 3 ) and two ( 2 ) customers that accounted for 44.0 % and 41.1 % of revenue for the years ended December 31, 2022 and 2021 , respectively.

We had three ( 3 ) and two ( 2 ) customers that in the aggregate accounted for 49.2 % and 56.6 % of accounts receivable as of December 31, 2022 and December 31, 2021 , respectively.

Significant Vendors

We had one ( 1 ) and three ( 3 ) vendors that accounted for 30.1 % and 69.1 % of outstanding accounts payable at December 31, 2022 and December 31, 2021 , respectively.

SUBSEQUENT EVENTS

Second Amendment to Merger Agreement

On February 11, 2023, the Company, Reflect and the Stockholders’

Representative, executed a Second Amendment to the Merger Agreement.

The Second Amendment to the Merger Agreement provides that, among other things, the cash merger consideration payable in the Merger should be reduced by $ 242 , or the “Claim Amount,”

subject to a reduction in the Claim Amount to the extent that Reflect or Creative Realities receive payments of certain accounts receivable of Reflect, up to $ 27 .

An employer retention credit of $ 242 (the “ERC”) based on the operations of Reflect pre-Merger remains outstanding and will be paid to the Stockholders’

Representative for the benefit of former Reflect stockholders upon receipt, subject to the offset rights of Creative Realities described below.

Secured Promissory Note

February 11, 2023, the Company and the Stockholders’

Representative executed an amendment, or the “Note Amendment,”

to the Secured Promissory Note.

The Secured Promissory Note required Creative Realities to pay to the Stockholders’

Representative a balloon payment of $ 1,250 , plus all accrued and unpaid interest, on its stated maturity date, February 17, 2023.

The Note Amendment eliminates the balloon payment, extending the maturity date for a one -year period, to February 17, 2024.

During the extended period, Creative Realities will continue to make monthly principal payments of $ 104 , and the annual interest rate on the outstanding principal increased from 0.59 % to 4.60 %, which will accrue and is payable in full on the new maturity date.

Offset Rights;

Payment of Claim Amount

In light of the possible collection of the ERC and the Note Amendment, the parties agreed that the Claim Amount would be reduced by the amount of any ERC received by Creative Realities or Reflect prior to the maturity date of the Secured Promissory Note.

If the Claim Amount exceeds the remaining amounts payable under the Secured Promissory Note on any payment date, Creative Realities may reduce the amount of the Secured Promissory Note, and the Claim Amount will be reduced on a dollar-for-dollar basis.

Escrow Agreement

In light of the resolution of the Claim Amount, the parties agreed to release the $ 250 escrow funds, plus interest, to the Stockholders’

Representative, which was placed in escrow at the closing of the Merger to be released once the Claim Amount was paid.

The parties also amended the Escrow Agreement executed at the closing of the Merger (the “Escrow Amendment”) to extend the period for which the escrow agent therein would accept monthly payments of the Secured Promissory Note until the extended maturity date, February 17, 2024.

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.

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. 

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.

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

The Company contributed $ 253 and $ 142 to employee retirement plans for the year-ended December 31, 2023 and 2022 , respectively.

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 9A. Controls and Procedures