Item 5. Market for Registrant’s Common Equity
ITEM 5 MARKET FOR REGISTRANT ’ S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
(All currency is rounded to the nearest thousands, except share and per share amounts.)
Market Information
Our common stock is listed for trading on the Nasdaq Capital Market under the symbol “CREX”. The transfer agent and registrar for our common stock is Computershare Limited, 401 2nd Avenue North, Minneapolis, Minnesota 55401.
Shareholders
As of March 20, 2024, we had 378 holders of record of our common stock.
Dividend Policy
We have never declared or paid cash dividends on our common stock. We currently intend to retain future earnings, if any, to operate and expand our business and to finance the development and expansion of our business. We do not anticipate paying cash dividends on our common stock in the foreseeable future. Any payment of cash dividends in the future will be at the discretion of our Board of Directors and will depend upon our results of operations, earnings, capital requirements, contractual restrictions, and other factors deemed relevant by our Board of Directors.
Holders of our common stock are entitled to share pro rata in dividends and distributions with respect to the common stock when, as and if declared by our Board of Directors out of funds legally available for distribution.
Recent Sales of Unregistered Securities
None.
Securities Authorized for Issuance Under Equity Compensation Plans
Information about our equity compensation plans is set forth in Item 12 of Part III of this Report, which is incorporated herein by reference.
ITEM 6 [RESERVED]
Not applicable.
ITEM 7 MANAGEMENT ’ S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(All currency is rounded to the nearest thousands, except share and per share amounts.)
The following discussion should be read in conjunction with the financial statements and related notes for the years ended December 31, 2023 and 2022, which are included elsewhere in this Report. This Management’s Discussion and Analysis of Financial Condition and Results of Operations contains statements that are forward-looking. These statements are based on current expectations and assumptions that are subject to risk, uncertainties and other factors. These statements are often identified by the use of words such as “may,” “will,” “expect,” “believe,” “anticipate,” “intend,” “could,” “estimate,” or “continue,” and similar expressions or variations.
You should review the " Cautionary Note Regarding Forward-Looking Statements; Risk Factor Summary ", and " Risk Factors " sections of this Report for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements described in the following discussion and analysis.
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Overview
The Company transforms environments through digital solutions by providing innovative digital signage solutions for key market segments and use cases, including:
●
Retail
●
Entertainment and Sports Venues
●
Restaurants, including QSRs
●
Convenience Stores
●
Financial Services
●
Automotive
●
Medical and Healthcare Facilities
●
Mixed Use Developments
●
Corporate Communications, Employee Experience
●
DOOH Advertising Networks
We serve market-leading companies, so there is a good chance that if you leave your home today to shop, work, eat or play, you will encounter one or more of our digital signage experiences. Our solutions are increasingly visible because we help our enterprise customers achieve a range of business objectives including:
●
Increased brand awareness;
●
Improved customer support;
●
Enhanced employee productivity and satisfaction;
●
Increased revenue and profitability;
●
Improved guest experience; and
●
Increased customer/guest engagement.
Through a combination of organically grown platforms and a series of strategic acquisitions, including our acquisition of Reflect in February 2022, the Company assists customers to design, deploy, manage, and monetize their digital signage networks. The Company sources leads and opportunities for its solutions through its digital and content marketing initiatives, close relationships with key industry partners, specifically equipment manufacturers, and the direct efforts of its in-house industry sales experts. Customer engagements focus on consultative conversations that ensure the Company’s solutions are positioned to help customers achieve their business objectives in the most cost-effective manner possible.
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When comparing us to other digital signage providers, our customers value the following competitive advantages:
●
Breadth of solutions – Creative Realities offers a wide breadth of solutions to our customers. Creative Realities is one of only a few companies in the industry capable of providing the full portfolio of products and services required to implement and run an effective digital signage network. We leverage a ‘single vendor’ approach, providing customers with a one-stop-shop for sourcing digital signage solutions from design through day two services.
●
Managed labor pool – Unlike most companies in our industry, we have a curated labor pool of qualified and vetted field technicians available to service customers quickly nationwide. We can meet tight schedules even in exceptionally large deployments and still ensure quality and consistency.
●
In-house creative resources – We assist customers in creating new content or repurposing existing content for digital signage experiences, an activity for which the Company has won several design awards in recent years. In each instance, our services can be essential in helping customers develop an effective content program.
●
Network scalability and reliability – Our SaaS content management platforms power some of the largest and most complex digital signage networks in North America, evidencing our ability to manage enterprise scale projects. This also provides us purchasing power to source products and services for our customers, enabling us to deliver cost effective, reliable and powerful solutions to small and medium size business customers.
●
Ad management platform – Our customers are increasingly interested in monetizing their digital signage networks through advertising content. However, efficiently scheduling advertising content into digital signage playlists to meet campaign objectives can be a challenging and labor-intensive process for our customers. AdLogic, our home-grown, content management-agnostic platform, automates this process, allowing network owners to capture more revenue with less expense.
●
Media sales – Few digital signage solution providers offer their customers media sales as a service. We have in-house media sales expertise to elevate conversations with our customers interested in better understanding network monetization. We believe this meaningful differentiation in the sales process provides us an additional revenue stream compared to our competitors.
●
Market sector expertise – Creative Realities has in-house experts in key market segments such as automotive, retail, QSRs, convenience stores, and DOOH advertising. Our expertise in these business segments enable our teams to provide meaningful business conversations and offer tailored solutions with prospects and customers to their unique business objectives. These experts build industry relationship and create thought leadership that drives lead flow and new opportunities for our business.
●
Logistics – Implementing a large digital signage project can be a logistical nightmare that can stall an initiative, even before deployment. Our expertise in logistics improves deployment efficiency, reduces delays and problems, and saves customers time and money.
●
Technical support – Digital signage networks present unique challenges for corporate IT departments. We simplify and improve end user support by leveraging our own NOC in Louisville, Kentucky. The NOC resolves many issues remotely and when field support is required, it can be dispatched quickly from the NOC, leveraging our managed labor pool to resolve customer issues quickly and effectively.
●
Integrations and Application Development – The future of digital signage is not still images and videos on a screen. We believe that interactive applications and integrations with other data sources will dominate the future. From social media feeds, mobile integrations, corporate data stores, or POS systems, our proven ability to build scalable applications and integrations is a key advantage that customers can leverage to deliver more compelling and engaging experiences for their customers.
●
Hardware support – A number of digital signage providers sell a proprietary media player or align themselves with just one operating system. We utilize a range of media players including Windows, Android and BrightSign to provide customers the flexibility they need to select the appropriate hardware for any application knowing the entire network can still be served by a single digital signage platform, reducing complexity and improving the productivity of our customers.
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Our Sources of Revenue
The three primary sources of revenue for the Company are:
●
Hardware sales from reselling digital signage hardware from original equipment manufacturers such as Samsung and BrightSign.
●
Services revenue from helping customers design, deploy and manage their digital signage network, including:
o
Hardware system design/engineering
o
Hardware installation
o
Content development
o
Content scheduling
o
Post-deployment network and field support
o
Media sales
●
Recurring subscription licensing and support revenue from our digital signage software platforms, which are generally sold via a SaaS model. Our platforms:
o
ReflectView , the Company’s core digital signage platform for most applications, scalable and cost effective from 10 to 100,000+ devices;
o
Reflect Xperience , a web-based interface that allows customers to give content scheduling access to local users via the web or mobile devices, while still maintaining centralized programming control;
o
Reflect AdLogic , the Company’s ad management platform for digital signage networks, which presently delivers approximately 50 million ads daily;
o
Clarity , the Company’s menu board solution, which has become a market leader for a range of restaurant and convenience store applications;
o
Reflect Zero Touch , which allows customers to turn any screen into an interactive experience by allowing guests to engage using their mobile device;
o
iShowroomProX , an omni-channel digital sales support platform targeted at original equipment manufacturers in the transportation sector, which integrates with dozens of key data services including dealer inventory at the VIN level; and
o
OSx+ , a digital VIN-level checklist used to assist in the tracking and delivery of new vehicles in the transportation sector, providing measurable lift in customer satisfaction scores and connected vehicle enrollments and subscription activations.
While hardware sales and support services revenues can fluctuate more significantly year over year based on new, large-scale network deployments, the Company expects to see continuous growth in recurring SaaS revenue for the foreseeable future as digital signage adoption/utilization continues to expand across the vertical markets we serve.
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Our Expenses
Our expenses are primarily comprised of three categories: sales and marketing, research and development, and general and administrative. Sales and marketing expenses include salaries and benefits for our sales, business development solution management and marketing personnel, and commissions paid on sales. This category also includes amounts spent on marketing networking events, promotional materials, hardware and software to prospective new customers, including those expenses incurred in trade shows and product demonstrations, and other related expenses. Our research and development expenses represent the salaries and benefits of those individuals who develop and maintain our proprietary software platforms and other software applications we design and sell to our customers. Our general and administrative expenses consist of corporate overhead, including administrative salaries, real property lease payments, salaries and benefits for our corporate officers and other expenses such as legal and accounting fees.
Recent Developments
Public Offering
On August 17, 2023, the Company conducted a public offering for the sale by the Company of an aggregate of 3,000,000 shares of common stock, par value $0.01 per share at a public offering price of $2.00 per share and received approximately $5,454 in net proceeds, after deducting underwriting fees of $478 and offering costs of $68.
Reverse stock split
On March 23, 2023, the Company filed Articles of Amendment with the Secretary of State of the State of Minnesota to effectuate, effective March 27, 2023, a 1-for-3 stock split of the shares of the Company's common stock, par value $0.01 per share.
As a result of the reverse stock split, effective 12:01 am on March 27, 2023, every three shares of common stock then-issued and outstanding automatically combined into one share of common stock, with no change in par value per share. No fractional shares were outstanding following the reverse stock split and any fractional shares resulting from the reverse split were rounded up to the nearest whole share of common stock. In connection with the reverse stock split, the total number of shares of common stock authorized for issuance was reduced from 200,000,000 shares to 66,666,666 shares in proportion to the reverse stock split.
Effective as of the same time as the reverse stock split, the number of shares of common stock available for issuance under the Company's equity compensation plans were reduced in proportion to the reverse stock split. The reverse stock split also resulted in the number of shares of shares of common stock issuable upon exercise of outstanding warrants, or the exercise or vesting of equity awards, in proportion to the reverse stock split and caused a proportionate increase in exercise price or share-based performance criteria, where applicable.
Rejection of unsolicited offers
On February 2, 2023 and May 1, 2023, we received unsolicited proposals from Pegasus, to acquire all of the outstanding shares of common stock of the Company that are not owned by Pegasus for purchase prices of $0.83 per share in cash (or, as a result of our 1-for-3 reverse stock split effectuated in March 2023, $2.49 per share), and $2.85 per share in cash, respectively. Pegasus is the beneficial owner of our common stock owned of record by Slipstream. The Special Committee concluded that each proposal undervalued the Company based on the Special Committee’s views of the intrinsic value of the Company’s existing business and current and future prospects, and was not in the best interests of the Company’s existing shareholders. Consequently, the Special Committee advised Pegasus that it rejected each proposal, and since such time, Pegasus has not made any subsequent acquisition proposal.
Please see Note 5 Business Combinations , Note 8 Loans Payable , Note 11 Warrants , and Note 12 Stock-based Compensation to the Company’s Consolidated Financial Statements contained in this Report for a description of other recent developments of the Company that occurred during, and subsequent to, the year ended December 31, 2023.
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Critical Accounting Policies and Estimates
Our management is responsible for our financial statements and has evaluated the accounting policies to be used in their preparation. Our management believes these policies are reasonable and appropriate. The Company’s significant accounting policies are described in Note 2 Summary of Significant Accounting Policies of the Company’s Consolidated Financial Statements included within Part II, ITEM 8 of this Report. The following discussion identifies those accounting policies that we believe are critical in the preparation of our financial statements, the judgments and uncertainties affecting the application of those policies and the possibility that materially different amounts will be reported under different conditions or using different assumptions.
The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America (“GAAP”) requires that management make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of commitments and contingencies at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Our actual results could differ from those estimates.
Revenue Recognition
We recognized revenue in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers (“ASC 606”). Under ASC 606, we account for revenue using the following steps:
●
Identify the contract, or contracts, with a customer;
●
Identify the performance obligations in the contract;
●
Determine the transaction price;
●
Allocate the transaction price to the identified performance obligations; and
●
Recognize revenue when, or as, we satisfy our performance obligations.
See Note 2 Summary of Significant Accounting Policies and Note 4 Revenue Recognition in our Consolidated Financial Statements, included in Part II, ITEM 8 of this Report, for a complete discussion of our revenue recognition policies.
Goodwill
Goodwill is evaluated for impairment annually as of September 30 and whenever events or circumstances make it more likely than not that impairment may have occurred. We have no other indefinite-lived intangible assets. We test goodwill for impairment by comparing the book value to the fair value at the reporting unit level. We have only one reporting unit, and therefore the entire goodwill is allocated to that reporting unit. The fair value of the reporting unit is determined by using a discounted cash flow analyses consisting of various assumptions, including expectations of future cash flows based on projections or forecasts derived from analysis of business prospects and economic or market trends that may occur. We use these same expectations in other valuation models throughout our business. In addition to the discounted cash flow analysis, we utilize a leveraged buy-out model, trading comparables and market capitalization to ultimately determine an estimated fair value of our reporting unit based on weighted average calculations from these models. We base our fair value estimates on assumptions we believe to be reasonable but that are unpredictable and inherently uncertain. If the carrying amount exceeds the fair value, further analysis is performed to measure the impairment loss.
In addition, our market capitalization could fluctuate from time to time. Such fluctuation may be an indicator of possible impairment of goodwill if our market capitalization falls below its book value. If this situation occurs, we perform the required detailed analysis to determine if there is impairment.
No impairment was recorded as a result of our annual assessment completed as of September 30, 2023.
The valuation of goodwill is subject to a high degree of judgment, uncertainty and complexity. We believe the future estimates and assumptions used to test for impairment losses on goodwill are reasonable. However, if actual results are not consistent with our estimates or assumptions, we may be exposed to an impairment charge that could be material.
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Income Taxes
Accounting for income taxes requires recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities. These deferred taxes are measured by applying the provisions of tax laws in effect at the balance sheet date, including the impact of the Tax Cuts and Jobs Act enacted on December 22, 2017 (the “Tax Act”).
We recognize in income the effect of a change in tax rates on deferred tax assets and liabilities in the period that includes the enactment date.
As of December 31, 2023, a full valuation allowance is recorded against our deferred tax. The valuation allowance is based, in part, on our estimate of future taxable income, the expected utilization of federal and state tax loss carryforwards, and credits and the expiration dates of such tax loss carryforwards. Significant assumptions are used in developing the analysis of future taxable income for purposes of determining the valuation allowance for deferred tax assets which, in our opinion, are reasonable under the circumstances.
Impact of Recently Issued Accounting Pronouncements
Refer to Note 2 Summary of Significant Accounting Policies in our Consolidated Financial Statements included in Part II, ITEM 8 of this Report, for a full description of recent accounting pronouncements, including the expected dates of adoption and estimated effects on results of operations and financial condition, which is incorporated herein by reference.
Results of Operations
Note: All dollar amounts reported in Results of Operations are in thousands, except per-share information.
Year Ended December 31, 2023 Compared to Year Ended December 31, 2022
The tables presented below compare our results of operations from one period to another, and present the results for each period and the change in those results from one period to another in both dollars and percentage change.
Year Ended December 31,
Change
2023
2022
%
Sales
$
45,166
$
43,350
$
1,816
4
%
Cost of sales
22,983
25,611
(2,628
)
10
%
Gross profit
22,183
17,739
4,444
25
%
Sales and marketing expenses
5,247
3,651
1,596
44
%
Research and development expenses
1,574
1,251
323
26
%
General and administrative expenses
10,795
11,892
(1,097
)
9
%
Depreciation and amortization expense
3,221
2,833
388
14
%
Deal and transaction
-
592
(592
)
100
%
Total operating expenses
20,837
20,219
618
3
%
Operating income (loss)
1,346
(2,480
)
3,826
154
%
Other expense (income):
Interest expense
2,992
2,743
249
9
%
Change in fair value of contingent consideration
1,419
(1,074
)
2,493
232
%
Change in fair value of warrant liability
-
(7,902
)
7,902
100
%
Loss on debt waiver consent
-
1,212
(1,212
)
100
%
Loss on warrant amendment
-
345
(345
)
100
%
Loss on settlement of debt
-
237
(237
)
100
%
Other expense (income)
(211
)
4
(215
)
5375
%
Total other expense (income)
4,200
(4,435
)
8,635
195
%
Net (loss) income before income taxes
(2,854
)
1,955
(4,809
)
246
%
Income tax expense
(83
)
(79
)
(4
)
5
%
Net (loss) income
$
(2,937
)
$
1,876
$
(4,813
)
257
%
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Sales
Sales increased by $1,816, or 4%. Hardware revenues were $20,303, an increase of $408 or 2%. While hardware revenues were effectively flat year over year, the composition in each year was substantially different, with the current year comprised of lower customer concentration (including no customer greater than 19% of hardware revenues) and an increasing number of customers making consistent, repeated purchases of similar solutions on a regular cadence. The prior year included a single customer that represented 43% of hardware revenues.. Services and other revenues were $24,863, an increase of $1,408 or 6%, driven by managed services revenue. Managed services revenue, which includes both SaaS and help desk technical subscription services increased to $15,916 from $14,320. The increase is driven by increasing software subscription revenue, with the annual recurring run rate of our subscription license revenue growing from $14,826 as of December 31, 2022 to $16,336 as of December 31, 2023. This represents a year-over-year growth rate of approximately 11% in our higher margin, typically subscription-based, managed service revenue.
Gross Profit
Gross profit increased $4,444 to $22,183 from $17,739, or 25%, through a combination of a 4% increase in revenue and an 8% increase in gross margin percentage. Gross margin increased to 49% from 41% driven by expanding margins in our services revenue and entry into a material, long-term media sales contract for which revenue is recognized on a net basis in the current year.
Sales and Marketing Expenses
Sales and marketing expenses generally include the salaries, taxes, and benefits of our sales and marketing personnel, as well as trade show activities, travel, and other related sales and marketing costs. Sales and marketing expenses increased by $1,596, or 44%, driven primarily by the Company’s enhanced investments into sales and marketing activities. Following our acquisition of Reflect via merger (the "Merger"), the Company adopted certain tools, technology, and processes – particularly with respect to lead generation and brand marketing – that were historically undercapitalized by the Company and have since accelerated new customer acquisition. Through completion of the Merger, the Company also acquired a media sales business unit that serves to monetize customer networks via the direct sale of advertising to be displayed on digital advertising networks owned by those customers. This business utilizes internal and third-party sales agents - the salaries and commissions of which are included within Sales and Marketing Expense within the Consolidated Statement of Operations.
Research and Development Expenses
Research and development expenses generally include personnel and development tools costs associated with the continued development of the Company’s content management systems and other related application development. The Company capitalizes certain of these expenses and amortizes those costs through the Consolidated Statement of Operations on a straight-line basis over the economic useful life of the software feature or functionality. Research and development expenses increased by $323, or 26%, driven primarily by incremental headcount added via completion of the Merger on February 17, 2022, and a higher rate of bug and maintenance work as compared to capitalized activities during the year. Through the Merger, we acquired a fully staffed, experienced software development team and elected to keep that team in-tact, particularly given current competitive employment market conditions with respect to talented software engineers. We integrated the development teams which has enhanced speed to market on new feature and functionality development activities.
General and Administrative Expenses
General and administrative expenses decreased $1,097, or 9% driven by a decrease of $1,553 in stock compensation expense as outstanding performance awards were fully expensed as of December 31, 2022. This decrease was partially offset by increased personnel costs as a result of higher headcount following the Merger and scaled up operations in response to an increase in customer acquisition and associated planned deployments.
Depreciation and Amortization Expenses
Depreciation and amortization expenses increased by $388, or 14%. This was driven by a full year of amortization on the $17,160 in amortizing intangible assets acquired as a result of the Merger. Depreciation was consistent in both periods.
Interest Expense
See Note 8 Loans Payable to the Consolidated Financial Statements for a discussion of the Company’s debt and related interest expense obligations.
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Change in Fair Value of Contingent Consideration
The Company has a contingent consideration arrangement related to the Merger to potentially pay additional cash amounts in future periods based on the lack of achievement of certain share price performance goals of our common stock. Such contingent consideration arrangements are recorded at fair value and are classified as liabilities on the acquisition date and are remeasured at each reporting period in accordance with ASC 805-30-35-1 using a Monte Carlo simulation model. The change in the period represents the mark-to-market adjustment as of the balance sheet date.
Changes in Fair Value of Warrant Liability; Loss on Warrant Amendment
During the year ended December 31, 2022, the Company recorded a gain of $7,902 as the result of assessing the fair value of warrant liabilities associated with the Company’s issuance of warrants in its debt and equity offerings completed in February 2022 to finance the Merger. These warrants were initially assessed at fair value through Black Scholes calculation, with changes in fair value recognized at each period end.See Note 11 Warrants to the Consolidated Financial Statements for a discussion of the Company's warrant activity.
Loss on Debt Waiver
During 2022, in connection with obtaining a waiver of certain restrictions in investment documents between an investor and the Company in order to consummate the financing contemplated by the Company's credit agreement with Slipstream, the Company paid consideration to such investor in the form of a purchaser warrant to purchase 466,667 shares of Company common stock (the “Purchaser Warrant”). The number of shares of Company common stock subject to the Purchaser Warrant was equal to the waiver fee ($175) divided by $0.375 per share. The exercise price of the Purchaser Warrant is $4.23 per share, and the Purchaser Warrant became exercisable on August 17, 2022. The Purchaser Warrant expires on February 17, 2028. On the date of issuance, the Company performed a Black-Scholes valuation of the Purchaser Warrant, resulting in a fair value of $2.5968 per warrant. In recording the warrant liability, the Company recorded an expense in the Consolidated Statement of Operations associated with the issuance of the Purchaser Warrant of $1,212. No such transactions occurred in the current year.
Loss on Warrant Amendment
Effective June 30, 2022, the Company amended the terms of certain of its outstanding warrants. The amendments to such warrants removed the holder’s option to determine the value of such warrants utilizing the volume weighted average price (“VWAP”) of the Company’s common stock on the trading day immediately preceding the date of a notice in a cashless exercise, and removed the condition to exercising such warrants that the Company’s shareholders approve the exercise thereof (which had already been obtained). The amendments to the warrants also extended the term of such warrants for an additional one year. As a result of the extension in term provided in exchange for the amendment, the Company reassessed the fair value of each of the affected warrants, resulting in the Company recording a loss on the fair value of these warrants of $345.
Loss on Settlement of Obligations
On February 17, 2022, the Company refinanced its debt facilities with Slipstream. The Company assessed the combination of the pre-existing senior secured term loan and secured convertible loan in accordance with ASC 470 Debt and determined the transaction should be accounted for as an extinguishment of debt, in part as the Consolidation Term Loan eliminated a substantive conversion feature. In aggregate the Company recorded a loss on extinguishment of $295, primarily associated with the write-off of pre-existing debt discounts.
Supplemental Operating Results on a Non-GAAP Basis
The following non-GAAP data, which adjusts for the categories of expenses described below, is a non-GAAP financial measure. Our management believes that this non-GAAP financial measure is useful information for investors, shareholders and other stakeholders of our Company in gauging our results of operations on an ongoing basis. We believe that earnings before interest, depreciation, and amortization (“EBITDA”) is a performance measure and not a liquidity measure, and therefore a reconciliation between net (loss) income, a GAAP financial measure, and EBITDA and Adjusted EBITDA has been provided. EBITDA should not be considered as an alternative to net (loss) income as an indicator of performance or as an alternative to cash flows from operating activities as an indicator of cash flows, in each case as determined in accordance with GAAP, or as a measure of liquidity. In addition, EBITDA does not take into account changes in certain assets and liabilities as well as interest and income taxes that can affect cash flows. We do not intend the presentation of these non-GAAP measures to be considered in isolation or as a substitute for results prepared in accordance with GAAP. These non-GAAP measures should be read only in conjunction with our Consolidated Financial Statements prepared in accordance with GAAP that are included elsewhere in this Report.
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Table of Contents
Quarters Ended
Year Ended
December 31,
September 30,
June 30,
March 31,
Quarters ended
2023
2023
2023
2023
2023
GAAP net (loss) income
$
(2,937
)
$
1,419
$
(1,931
)
$
(1,425
)
$
(1,000
)
Interest expense:
Amortization of debt discount
1,443
366
363
358
356
Other interest, net
1,549
302
371
429
447
Depreciation/amortization:
Amortization of intangible assets
3,055
781
766
754
754
Amortization of employee share-based awards
383
4
3
151
225
Depreciation of property and equipment
166
48
50
43
25
Income tax expense (benefit)
83
10
(15
)
45
43
EBITDA
$
3,742
$
2,930
$
(393
)
$
355
$
850
Adjustments
Loss (Gain) on fair value of contingent consideration
1,419
(42
)
1,369
16
76
Stock-based compensation – Director grants
150
21
43
43
43
Other expense (income)
(211
)
(79
)
3
(123
)
(12
)
Adjusted EBITDA
$
5,100
$
2,830
$
1,022
$
291
$
957
Quarters Ended
Year Ended
December 31,
September 30,
June 30,
March 31,
Quarters ended
2022
2022
2022
2022
2022
GAAP net income (loss)
$
1,876
$
(1,334
)
$
(554
)
$
1,262
$
2,502
Interest expense:
Amortization of debt discount
1,268
364
363
360
181
Other interest, net
1,475
423
394
390
268
Depreciation/amortization:
Amortization of intangible assets
2,702
743
848
431
680
Amortization of employee share-based awards
1,689
448
456
316
469
Depreciation of property and equipment
131
30
37
37
27
Income tax expense (benefit)
79
33
(10
)
53
3
EBITDA
$
9,220
$
707
$
1,534
$
2,849
$
4,130
Adjustments
Gain on fair value of warrant liability
(7,902
)
-
-
(2,433
)
(5,469
)
Loss (gain) on settlement of obligations
237
-
(37
)
(21
)
295
Loss on debt waiver consent
1,212
-
-
-
1,212
Loss on warrant amendment
345
-
-
345
-
(Gain) loss on fair value of contingent consideration
(1,074
)
(705
)
(442
)
73
-
Disposal of Safe Space Solutions inventory
909
909
-
-
-
Deal and transaction costs
592
54
110
37
391
Other income
4
7
2
1
(6
)
Stock-based compensation – Director grants
302
56
82
82
82
Adjusted EBITDA
$
3,845
$
1,028
$
1,249
$
933
$
635
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Liquidity and Capital Resources
See Note 1 Nature of Organization and Operations to the accompanying Consolidated Financial Statements for a detailed discussion of liquidity and financial resources.
Operating Activities
The cash flows provided by (used in) operating activities were $5,167 and $(708) for the years ended December 31, 2023 and 2022, respectively. The Company generated a net loss of $2,937, which included depreciation and amortization expense (inclusive of amortization of debt discount) of $4,664 and a loss on the change in fair value of contingent consideration of $1,419. The Company generated a $1,261 increase in cash provided by changes in operating assets and liabilities, primarily due to increases in accounts payable, and customer deposits, a decrease in prepaid expenses and other current assets, partially offset by an increase to accounts receivable.
Investing Activities
Net cash used in investing activities during the year ended December 31, 2023 was $4,027 as compared to $21,475 for the same period in 2022. The use of cash in the prior year was driven by completion of the Merger. We currently do not have any material commitments for capital expenditures as of December 31, 2023; however, we anticipate a reduction in capital expenditures entering 2024 as we complete the modernization and internationalization of our automotive platform in an effort to capture incremental SaaS-based revenue contracts.
Financing Activities
Net cash provided by financing activities during the year ended December 31, 2023 was $137 compared to net cash provided by financing activities of $20,933 for the same period in 2022. The change is the result of the Company’s completion of equity and debt financing in the first quarter of 2022 to facilitate the Merger, which provided net cash of $10,109 and $9,868, respectively. Net cash provided by financing activities during the year ended December 31, 2023, is primarily the result of a common stock offering completed in August 2023, generating cash of $5,454, net of offering expenses, offset by repayments made on the Consolidation Term Loan, Term Loan (2022), and Secured Promissory Note of $2,040, $2,000 and $1,254, respectively.
Off-Balance Sheet Arrangements
During the year ended December 31, 2023, we did not engage in any off-balance sheet arrangements set forth in Item 303(a) (4) of Regulation S-K.
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Consolidated Financial Statements on Page F-1 .
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
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