CREATIVE REALITIES, INC. 10-K

ITEM 9A CONTROLS AND PROCEDURES 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 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. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance of achieving their control objectives. Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of our internal control over financial reporting as of December 31, 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 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. ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS. Not applicable. 31 Table of Contents PART III 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 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 The information required by this Item is incorporated by reference from the Proxy Statement. ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS Securities Authorized for Issuance Under Equity Compensation Plans The table below sets forth certain information, as of the close of business on December 31, 2023, regarding equity compensation plans (including individual compensation arrangements) under which our securities were then authorized for issuance. Number of Securities Remaining Number of Available for Securities to be Weighted- Issuance Under Issued Upon Average Equity Exercise of Exercise Price of Compensation Outstanding Outstanding Plans (excluding Options, Options, securities Warrants and Warrants and reflected in Rights Rights column (a)) (a) (b) (c) Equity compensation plans approved by shareholders 1,636,132 (1) 6.51 None Equity compensation plans not approved by shareholders 1,500,000 (2) N/A None (1) 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. (2) 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. 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 The information required by this Item is incorporated by reference from the Proxy Statement. 32 Table of Contents PART IV ITEM 15 EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) See “Index to Consolidated Financial Statements” on page F-1 . (b) See “Exhibit Index” on page 34 . (c) Not applicable. 33 Table of Contents EXHIBIT INDEX Exhibit No. Description 2.1 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) 2.2 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) 2.3 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) 3.1* Articles of Incorporation, as amended 3.2 Amended and Restated Bylaws (incorporated by reference to the registrant’s Current Report on Form 8-K filed on November 2, 2011) 4.1 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. 333-136972)) 4.2* Description of Securities 4.3 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) 4.4 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). 4.5 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) 4.6 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) 4.7 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) 10.1+ 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). 10.2+ 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) 10.3 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) 10.4 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) 10.5 $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) 34 Table of Contents Exhibit No. Description 10.6 $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) 10.7 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) 10.8 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) 10.9+ 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) 10.10+ 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) 10.11+ Retention Bonus Plan (incorporated by reference to Exhibit 10.5 of the registrant’s Current Report on Form 8-K filed February 18, 2022) 10.12+ 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) 10.13+ 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) 10.14+ Amendment to Stock Option Agreement dated June 15, 2022 between the Company and Will Logan (incorporated by reference to Exhibit 10.2 to the registrant's Current Report on Form 8-K filed with the SEC on June 17, 2022) 10.15+ Stock Option Agreement dated June 15, 2022 between the Company and Rick Mills (incorporated by reference to Exhibit 10.3 to the registrant's Current Report on Form 8-K filed with the SEC on June 17, 2022) 10.16+ 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) 10.17 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 14.1 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) 19.1* Insider Trader Policy 35 Table of Contents Exhibit No. Description 21.1* List of Subsidiaries 23.1* Consent of Deloitte & Touche LLP 31.1* Chief Executive Officer Certification pursuant to Exchange Act Rule 13a-14(a). 31.2* Chief Financial Officer Certification pursuant to Exchange Act Rule 13a-14(a). 32.1* Chief Executive Officer Certification pursuant to 18 U.S.C. Section 1350. 32.2* Chief Financial Officer Certification pursuant to 18 U.S.C. Section 1350. 99.1* (1) Press Release dated March 21, 2024 101.INS* Inline XBRL Instance Document. 101.SCH* Inline XBRL Taxonomy Extension Schema Document. 101.CAL* Inline XBRL Taxonomy Extension Calculation Linkbase Document. 101.DEF* Inline XBRL Taxonomy Extension Definition Linkbase Document. 101.LAB* Inline XBRL Taxonomy Extension Label Linkbase Document. 101.PRE* Inline XBRL Taxonomy Extension Presentation Linkbase Document. 104* Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). * Filed herewith + Compensatory Plan or arrangement required to be filed pursuant to Item 15(b) of Form 10-K. (1) 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. ITEM 16. FORM 10-K SUMMARY . None. 36 Table of Contents SIGNATURES 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. Creative Realities, Inc. By /s/ Richard Mills Richard Mills Chief Executive Officer By /s/ Will Logan Will Logan Chief Financial Officer 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. Signature Title Date /s/ Richard Mills Chief Executive Officer (Principal Executive Officer) March 21, 2024 Richard Mills and Chairman of the Board of Directors /s/ Will Logan Chief Financial Officer (Principal Financial and March 21, 2024 Will Logan Principal Accounting Officer) /s/ David Bell Director March 21, 2024 David Bell /s/ Donald Harris Director March 21, 2024 Donald Harris /s/ Steve Nesbit Director March 21, 2024 Steve Nesbit 37 Table of Contents INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm (PCAOB ID No. 34 ) F-2 Consolidated Financial Statements Consolidated Balance Sheets F-5 Consolidated Statements of Operations F-6 Consolidated Statements of Shareholders’ Equity F-7 Consolidated Statements of Cash Flows F-8 Notes to Consolidated Financial Statements F-9 F-1 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the shareholders and the Board of Directors of Creative Realities, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Creative Realities, Inc. and subsidiaries (the "Company") as of December 31, 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 These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. F-2 Table of Contents 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 on a discounted cash flow model and market 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 EBITDA margins. 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. 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. 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 and the highly sensitive nature of Company’s operations to changes in demand. This required a high degree of auditor judgment and an increased extent of effort, including the need to involve internal fair value specialists, when performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions. How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to the significant estimates and assumptions included in the 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: (1) historical revenue, gross profit, EBITDA, working capital as a percentage of revenue and capital expenditures; (2) internal communications to management and the Board of Directors, and; (3) forecasted information included in industry reports for the Company. ● 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 previous quantitative assessment to the annual assessment date and obtained supporting evidence for any significant changes in forecasted information. F-3 Table of Contents ● With the assistance of our internal fair value specialists: 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 Louisville, Kentucky March 21, 2024 We have served as the Company’s auditor since 2020. F-4 Table of Contents CREATIVE REALITIES, INC. CONSOLIDATED BALANCE SHEETS (in thousands) December 31, December 31, 2023 2022 ASSETS Current Assets: Cash and cash equivalents $ 2,910 $ 1,633 Accounts receivable, net 12,468 8,263 Inventories, net 2,567 2,267 Prepaid expenses and other current assets 665 1,819 Total Current Assets 18,610 13,982 Property and equipment, net 499 201 Goodwill 26,453 26,453 Other intangible assets, net 24,062 23,752 Operating lease right-of-use assets 1,041 1,584 Other non-current assets 112 43 Total Assets $ 70,777 $ 66,015 LIABILITIES AND SHAREHOLDERS’ EQUITY Current Liabilities: Accounts payable $ 7,876 $ 3,757 Accrued expenses and other current liabilities 3,761 3,828 Deferred revenues 1,132 1,223 Customer deposits 3,233 2,478 Current maturities of operating leases 505 711 Short-term portion of Secured Promissory Note - 1,248 Short-term portion of related party Consolidation Term Loan, net of $ 747 and $ 745 discount, respectively 3,690 1,251 Short-term related party Term Loan (2022) - 2,000 Total Current Liabilities 20,197 16,496 Long-term Secured Promissory Note - 208 Long-term related party Acquisition Term Loan, net of $ 787 and $ 1,484 discount, respectively 9,213 8,516 Long-term related party Consolidation Term Loan, net of $ 94 and $ 840 discount, respectively 616 4,349 Long-term obligations under operating leases 536 873 Contingent consideration, at fair value 11,208 9,789 Other non-current liabilities 176 205 Total Liabilities 41,946 40,436 Shareholders' Equity Common stock, $ 0.01 par value, 66,666 shares authorized; 10,409 and 7,266 shares issued and outstanding, respectively 104 72 Additional paid in capital 82,073 75,916 Accumulated deficit ( 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. F-5 Table of Contents CREATIVE REALITIES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share amounts) For the Years Ended December 31, 2023 2022 Sales Hardware $ 20,303 $ 19,895 Services and other 24,863 23,455 Total sales 45,166 43,350 Cost of sales Hardware 15,280 16,613 Services and other 7,703 8,998 Total cost of sales 22,983 25,611 Gross profit 22,183 17,739 Operating expenses: Sales and marketing 5,247 3,651 Research and development 1,574 1,251 General and administrative 10,795 11,892 Depreciation and amortization 3,221 2,833 Deal and transaction costs - 592 Total operating expenses 20,837 20,219 Operating income (loss) 1,346 ( 2,480 ) Other expense (income): Interest expense, including amortization of debt discount 2,992 2,743 Change in fair value of contingent consideration 1,419 ( 1,074 ) Change in fair value of warrant liability - ( 7,902 ) Loss on debt waiver consent - 1,212 Loss on warrant amendment - 345 Loss on settlement of obligations - 237 Other expenses (income), net ( 211 ) 4 Total other expense (income) 4,200 ( 4,435 ) Net (loss) income before income taxes ( 2,854 ) 1,955 Income tax expense ( 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 8,479 6,664 Weighted average shares outstanding - diluted 8,479 6,664 See accompanying Notes to Consolidated Financial Statements. F-6 Table of Contents CREATIVE REALITIES, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS ’ EQUITY For the years ended December 31, 2023 and 2022 (in thousands, except shares) Additional Common Stock paid in Accumulated Year ended December 31, 2023 Shares Amount capital (Deficit) Total Balance as of December 31, 2022 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 Net loss - - - ( 2,937 ) ( 2,937 ) Balance as of December 31, 2023 10,409,027 $ 104 $ 82,073 $ ( 53,346 ) $ 28,831 Additional Common Stock paid in Accumulated Year ended December 31, 2022 Shares Amount capital (Deficit) Total 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. Merger 833,334 8 4,992 - 5,000 Warrant repricing events - - 31 ( 31 ) - Warrant amendment - - 5,709 - 5,709 Net income - - - 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. F-7 Table of Contents CREATIVE REALITIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) For the Years Ended December 31, 2023 2022 Operating Activities: Net (loss) income $ ( 2,937 ) $ 1,876 Adjustments to reconcile net (loss) income to be used in operating activities: Depreciation and amortization 3,221 2,833 Amortization of debt discount 1,443 1,268 Amortization of stock-based compensation 563 2,116 Bad debt expense 153 398 Loss (gain) on change in fair value of contingent consideration 1,419 ( 1,074 ) Deferred income taxes 44 - Gain on change in fair value of warrants - ( 7,902 ) Loss on debt waiver consent - 1,212 Loss on warrant amendment - 345 Loss on settlement of obligations - 237 Changes to operating assets and liabilities: Accounts receivable ( 4,358 ) ( 3,927 ) Inventories, net ( 300 ) ( 197 ) Prepaid expenses and other current assets 952 480 Accounts payable 4,486 914 Accrued expenses and other current liabilities ( 47 ) 1,112 Deferred revenue ( 91 ) ( 462 ) Customer deposits 755 110 Other, net ( 136 ) ( 47 ) Net cash provided by (used in) operating activities 5,167 ( 708 ) Investing activities Acquisition of business, net of cash acquired - ( 17,186 ) 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 Proceeds from sale of common stock, net of offering expenses 5,454 - Proceeds from Acquisition Term Loan, net of offering expenses - 9,868 Proceeds from sale & exercise of pre-funded warrants in PIPE, net of offering expenses - 8,295 Proceeds from Term Loan (2022) - 2,000 Proceeds from sale of common stock in PIPE, net of offering expenses - 1,814 Repayment of Consolidated Term Loan ( 2,040 ) Repayment of Term Loan (2022) ( 2,000 ) - Repayment of Secured Promissory Note ( 1,254 ) ( 1,044 ) Principal payments on finance leases ( 23 ) - Net cash provided by financing activities 137 20,933 Increase (decrease) in Cash and Cash Equivalents 1,277 ( 1,250 ) Cash and Cash Equivalents, beginning of year 1,633 2,883 Cash and Cash Equivalents, end of year $ 2,910 $ 1,633 See accompanying Notes to Consolidated Financial Statements. F-8 Table of Contents CREATIVE REALITIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except share and per share amounts) NOTE 1: NATURE OF ORGANIZATION AND OPERATIONS 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 ’ s Business Creative Realities, Inc. is a Minnesota corporation that provides innovative digital marketing technology and solutions to retail companies, individual retail brands, enterprises and organizations throughout the United States and in certain international markets. The Company has expertise in a broad range of existing and emerging digital marketing technologies, as well as the related media management and distribution software platforms and networks, device management, product management, customized software service layers, systems, experiences, workflows, and integrated solutions. Our technology and solutions include: digital merchandising systems and omni-channel customer engagement systems, interactive digital shopping assistants, advisors and kiosks, and other interactive marketing technologies such as mobile, social media, point-of-sale transactions, beaconing and web-based media that enable our customers to transform how they engage with consumers. We have expertise in a broad range of existing and emerging digital marketing technologies, as well as the following related aspects of our business: content, network management, and connected device software and firmware platforms; customized software service layers; hardware platforms; digital media workflows; 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. ("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 . F- 9 Table of Contents Liquidity and Financial Condition 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. NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A summary of the significant accounting policies consistently applied in the preparation of the accompanying Consolidated Financial Statements follows: 1. 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 Global Solutions, Inc., Creative Realities Canada, Inc., and Reflect Systems, Inc. All intercompany balances and transactions have been eliminated in consolidation, as applicable. 2. 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. F- 10 Table of Contents 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. 3. Revenue Recognition 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. The standalone selling price is based on an observable price for services sold to other comparable customers, when available, or an estimated selling price using a cost plus margin approach. The Company estimates the amount of total contract consideration it expects to receive for variable arrangements by determining the most likely amount it expects to earn from the arrangement based on the expected quantities of services it expects to provide and the contractual pricing based on those quantities. The Company only includes some or a portion of variable consideration in the transaction price when it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. The Company considers the sensitivity of the estimate, its relationship and experience with the 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 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 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. 4. 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. F- 11 Table of Contents 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 $ 620 Amounts accrued 398 Write-offs charged against the allowance ( 34 ) Balance as of December 31, 2022 $ 984 Amounts accrued 153 Write-offs charged against the allowance ( 436 ) Balance as of December 31, 2023 $ 701 5. Inventories 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: December 31, December 31, 2023 2022 Raw materials $ 2,063 $ 1,671 Work-in-process 504 596 Total inventories $ 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. 6. Impairment 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. If the impairment tests indicate that the carrying value of the asset is greater than the expected undiscounted cash flows to be generated by such asset, an impairment loss would be recognized. The impairment loss is determined as the amount by which the carrying value of such asset exceeds its fair value. We generally measure fair value by considering sale prices for similar assets or by discounting estimated future cash flows from such assets using an appropriate discount rate. Assets to be disposed of are carried at the lower of their carrying value or fair value less costs to sell. Considerable management judgment is necessary to estimate the fair value of assets, and accordingly, actual results could vary significantly from such estimates. 7. Basic and Diluted Income/(Loss) per Common Share 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 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. F- 12 Table of Contents 8. Income Taxes 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 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, 2023 and 2022. 9. Goodwill and Definite-Lived 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. The Company uses an annual measurement date of September 30 to assess impairment of goodwill and indefinite-lived intangible assets, or as indicators are identified. Definite-lived intangible assets are amortized straight-line in accordance with their identified useful lives. 10. Use of Estimates 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: 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. 11. Property and Equipment Property and equipment are carried at cost, less accumulated depreciation and amortization. Depreciation is provided for in amounts sufficient to relate the cost of depreciable assets to operations over the estimated service lives, principally using straight-line methods. Leasehold improvements are amortized over the shorter of the life of the improvement or the lease term, using the straight-line method. Property and equipment consist of the following at December 31, 2023 and 2022 : December 31, 2023 2022 Equipment $ 334 $ 138 Leasehold improvements 298 197 Furniture and fixtures 205 199 Other depreciable assets 135 124 Total property and equipment 972 658 Less: accumulated depreciation and amortization ( 473 ) ( 457 ) Net property and equipment $ 499 $ 201 F- 13 Table of Contents The estimated useful lives used to compute depreciation and amortization are as follows: Asset class Useful life assigned (in years) Equipment 3 – 5 Furniture and fixtures 3 – 5 Leasehold improvements Shorter of 5 years or term of lease 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. 12. Research and Development and Software Development Costs Research and development expenses consist primarily of development personnel and non-employee contractor costs related to the development of new products and services, enhancement of existing products and services, quality assurance and testing. The Company capitalizes its costs incurred for additional functionality to its internal software. 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 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 other intangible assets, net on the Consolidated Balance Sheets. 13. 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. NOTE 3: 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. F- 14 Table of Contents NOTE 4: 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, 2023 and 2022 : Year Year Ended Ended December 31, December 31, 2023 2022 Hardware $ 20,303 $ 19,895 Services: Managed Services 15,916 14,320 Installation Services 4,892 5,693 Other Services 4,055 3,442 Total Services 24,863 23,455 Total Hardware and Services $ 45,166 $ 43,350 System hardware sales System hardware revenue is recognized generally upon shipment of the product or customer acceptance depending upon contractual arrangements with the customer in instances in which the sale of hardware is the sole performance obligation. Shipping charges billed to customers are included in hardware sales and the related shipping costs are included in hardware cost of sales. The cost of freight and shipping to the customer is recognized in cost of sales at the time of transfer of control to the customer. System hardware revenues are classified as “Hardware” within our disaggregated revenue. Software as a service license sales Software as a service includes revenue from software licensing and delivery in which software is licensed on a subscription basis and is centrally hosted by the Company. These services often include software updates which provide customers with rights to unspecified software product upgrades and maintenance releases and patches released during the term of the support period. Contracts for these services are generally 12 - 36 months in length. We account for revenue from these services in accordance with ASC 985 - 20 - 15 - 5 and recognize revenue ratably over the performance period. Software as a service revenue are classified as “Managed Services” within our disaggregated revenue. Maintenance and support services 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. These agreements are renewable by the customer. Rates for maintenance and support, including subsequent renewal rates, are typically established based upon a fee per location, per device, or a specified percentage of net software license fees as set forth in the arrangement. These contracts are generally 12 - 36 months in length. Revenue is recognized ratably and evenly over the service period. The Company also performs time and materials-based maintenance and repair work for customers. Revenue is recognized at a point in time when the performance obligation has been fully satisfied. F- 15 Table of Contents 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 sales 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. F- 16 Table of Contents NOTE 5: 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. F- 17 Table of Contents 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. F- 18 Table of Contents 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 $ 16,664 (1) Cash consideration for Retention Bonus Plan 1,334 (2) Common stock issued to Reflect shareholders 4,667 (3) Common stock issued to Retention Bonus Plan 333 (4) Secured Promissory Note 2,500 (5) Contingent consideration 10,862 (6) Total consideration 36,360 Vendor deposit with the Company (818 ) (7) Cash acquired (812 ) (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 initial issuances under the Retention Bonus Plan per Merger Agreement. ( 5 ) 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. ( 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 $ 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. ( 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. F- 19 Table of Contents 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: Total Accounts receivable $ 1,359 Inventory 190 Prepaid expenses & other current assets 666 Property and equipment 96 Operating right of use assets 555 Other assets 36 Identified intangible assets: Definite-lived trade names 960 Definite-lived developed technology 5,130 Definite-lived customer relationships 11,040 Definite-lived noncompete agreements 30 Goodwill 18,935 Accounts payable ( 104 ) Accrued expenses ( 483 ) Customer deposits ( 1,661 ) Deferred revenues ( 1,259 ) Current maturities of operating leases ( 277 ) Long-term obligations under operating leases ( 278 ) Other liabilities ( 205 ) Net consideration transferred $ 34,730 The Company engaged a third -party valuation specialist to assist in the identification and calculation of the fair value of those separately identifiable intangible assets. The Company completed its valuation procedures by asset utilizing the following approaches: ( 1 ) Customer relationship asset was estimated using the income approach through a discounted cash flow analysis wherein the cash flows will be based on estimates used to price the Merger. Discount rates were benchmarked with reference to the implied rate of return from the Company’s pricing model and the weighted average cost of capital. ( 2 ) Trade name asset represents the “Reflect” brand name as marketed primarily as a full services digital software solution, marketed in numerous verticals with the exception of food service. The Company applied the income approach through an excess earnings analysis to determine the fair value of the trade name asset. The Company applied the income approach through a relief-from-royalty analysis to determine the fair value of this asset. ( 3 ) The developed technology assets are primarily comprised of know-how and functionality embedded in Reflect’s proprietary content management applications, which drive currently marketed products and services. The Company applied the income approach through a relief-from-royalty analysis to determine the preliminary fair value of this asset. F- 20 Table of Contents 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: Amortization Valuation Period Identifiable definite-lived intangible assets: Trade names $ 960 5 years Developed technology 5,130 10 years Noncompete 30 2 years Customer relationships 11,040 10 years Total $ 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 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. NOTE 6: SUPPLEMENTAL CASH FLOW STATEMENT INFORMATION Year Ended December 31, 2023 2022 Supplemental non-cash Investing and Financing activities Capitalized software in accounts payable $ 201 $ 556 Property and equipment in accounts payable $ - $ 11 Supplemental disclosure information for cash flow Cash paid during the period for: Interest $ 1,685 $ 1,350 Income taxes $ 78 $ 43 F- 21 Table of Contents NOTE 7: INTANGIBLE ASSETS AND GOODWILL Intangible Assets Intangible assets consisted of the following at December 31, 2023 and 2022: December 31, December 31, 2023 2022 Gross Gross Carrying Accumulated Carrying Accumulated Amount Amortization Amount Amortization Technology platform $ 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 13,910 3,054 15,000 2,849 Trademarks and trade names 1,260 660 1,600 808 Noncompete 30 28 30 13 Total amortizable intangible assets 33,464 9,402 35,151 11,399 Accumulated amortization 9,402 11,399 Net book value of amortizable intangible assets $ 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, 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: Estimated Future Year ending December 31, Amortization 2024 $ 3,411 2025 3,490 2026 2,850 2027 2,458 2028 2,434 Thereafter 9,419 Total $ 24,062 Intangible assets include the following and are being amortized over their estimated useful lives as follows: Amortization Period: Acquired Intangible Asset: (years) Technology platform and patents 7 - 10 Purchased and developed software 3 - 5 Trade names 3 - 5 Customer relationships 3 - 15 Noncompete 2 F- 22 Table of Contents Goodwill 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 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 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. Should any indicators of impairment occur in subsequent periods, the Company will be required to perform an analysis in order to determine whether goodwill is impaired. F- 23 Table of Contents NOTE 8: LOANS PAYABLE The outstanding debt with detachable warrants, as applicable, are shown in the table below. Further discussion of the notes follows. As of December 31, 2023 Issuance Maturity Interest Rate Debt Type Date Principal Date Warrants Information A 2/17/2022 $ 10,000 2/15/2025 833,334 8.0% interest (1) B 2/17/2022 5,147 2/15/2025 898,165 10.0% interest (2) Total debt, gross $ 15,147 1,731,499 Debt discount ( 1,628 ) Total debt, net $ 13,519 Less current maturities ( 3,690 ) Long term debt $ 9,829 As of December 31, 2022 Issuance Maturity Interest Rate Debt Type Date Principal Date Warrants Information A 2/17/2022 $ 10,000 2/15/2025 833,334 8.0% interest (1) B 2/17/2022 7,185 2/15/2025 898,165 10.0% interest (2) C 2/17/2022 1,456 2/17/2024 - 0.59% interest (3) D 10/31/2022 2,000 9/1/2023 - 12.5% interest (4) Total debt, gross $ 20,641 1,731,499 Debt discount ( 3,069 ) Total debt, gross $ 17,572 Less current maturities ( 4,499 ) Total debt, net $ 13,073 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 ( 1 ) 8.0 % cash interest per annum through maturity at February 15, 2025 ( 2 ) 10.0 % cash interest per annum through maturity date at February 15, 2025. ( 3 ) 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. ( 4 ) 12.5 % cash interest per annum through maturity at September 1, 2023. F- 24 Table of Contents Secured Promissory Note 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, 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. 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 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. F- 25 Table of Contents 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 was 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 Consolidated Balance Sheets. The Company performed a Black-Scholes valuation of the warrants as of the issuance date, resulting in a fair value of $ 2.4387 per warrant. In recording the warrant liability, the Company recorded a debt discount associated with each of the Acquisition and Consolidation Term Loans in an amount of $ 2,032 and $ 2,190 , respectively. These amounts are being amortized straight-line through interest expense over the life of the loans, resulting in incremental interest expense of $ 1,443 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 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 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. F- 26 Table of Contents NOTE 9: 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, 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. 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 Report. NOTE 10: INCOME TAXES Income tax expense consisted of the following: Year ended December 31, 2023 2022 Tax provision summary: State income tax $ 39 $ 51 Deferred tax expense - federal 9 30 Deferred tax expense (benefit) – state 35 ( 2 ) Tax expense $ 83 $ 79 The income tax expense includes federal and state income taxes currently payable and those deferred or prepaid because of temporary differences between financial statement and tax bases of assets and liabilities. The Company records income taxes under the liability method. Under this method, deferred income taxes are recognized for the estimated future tax effects of differences between the tax bases of assets and liabilities and their financial reporting amounts based on enacted tax laws. A reconciliation of the statutory income tax rate to the effective income tax rates as a percentage of income before income taxes is as follows: 2023 2022 Federal statutory rate 21.00 % 21.00 % State taxes, net of federal benefit 1.28 % ( 2.02 )% Foreign rate differential 1.05 % ( 2.51 )% Fair value of Warrant Liability/Contingent Consideration ( 6.48 )% ( 79.66 )% Discrete items, Transaction items, and Other ( 2.13 )% ( 2.37 )% Changes in valuation allowance ( 16.53 )% 69.60 % Effective tax rate ( 1.81 )% 4.04 % F- 27 Table of Contents 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: December 31, 2023 2022 Deferred tax assets (liabilities): Reserves $ 249 $ 472 Property and equipment 57 165 Accrued expenses 514 593 Right-of-use Asset ( 254 ) ( 253 ) Right-of-use Liability 254 253 IRC 163(j) Interest Carryforward 704 18 Debt issuance costs 135 286 Non-qualified stock options 1,708 1,469 IRC Section 174 593 196 R&D credits 2,312 2,312 Net foreign carryforwards 3,753 3,664 US net operating loss and contribution carryforwards 38,010 37,953 Intangibles ( 3,818 ) ( 3,737 ) Total deferred tax liabilities, net 44,217 43,391 Valuation allowance ( 44,290 ) ( 43,419 ) Net deferred tax liabilities $ ( 73 ) $ ( 28 ) As of December 31, 2023 , the Company had no reserves recorded as a liability for unrecognized tax benefits for U.S. federal and state tax jurisdictions. There were no unrecognized tax benefits as of December 31, 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. Our deferred tax assets are primarily related to net federal and state operating loss carryforwards (NOLs). 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 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. IRC Section 382 generally imposes an annual limitation on the amount of NOLs that may be used to offset taxable income when a corporation has undergone significant changes in stock ownership within a statutory testing period. We have performed a preliminary analysis of the annual NOL carryforwards and limitations that are available to be used against taxable income. Based on the history of losses of the Company, there continues to be a full valuation allowance against the net deferred tax assets of the Company. F- 28 Table of Contents NOTE 11: WARRANTS A summary of outstanding warrants for the years ended December 31, 2023 and 2022 is included below: Year Ended December 31, 2023 Warrants (Equity) Weighted Weighted Average Average Exercise Remaining Amount Price Contractual Life Balance January 1, 2023 5,824,027 $ 6.56 4.21 Warrants expired ( 1,237,025 ) 12.70 - Balance December 31, 2023 4,587,002 $ 4.90 4.11 Year Ended December 31, 2022 Warrants (Equity) Weighted Weighted Average Average Exercise Remaining Amount Price Contractual Life Balance January 1, 2022 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 ( 130,712 ) 10.44 - Warrants reclassified 4,587,002 4.90 4.73 Balance December 31, 2022 5,824,027 $ 6.56 4.21 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. 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. F- 29 Table of Contents 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. 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. F- 30 Table of Contents NOTE 12: STOCK-BASED COMPENSATION A summary of outstanding options as of December 31, 2023 is included below: Time Vesting Options Weighted Average Weighted Weighted Remaining Average Average Range of Exercise Number Contractual Exercise Options Exercise Prices between Outstanding Life Price Exercisable Price $4.01 - $8.00 566,673 6.63 $ 7.42 566,673 $ 7.42 8.01+ 96,125 2.03 25.22 96,125 25.22 662,798 5.96 $ 10.00 662,798 $ 10.00 Performance Vesting Options Weighted Average Weighted Weighted Remaining Average Average Range of Exercise Number Contractual Exercise Options Exercise Prices between Outstanding Life Price Exercisable Price $4.01 - $8.00 240,000 6.42 $ 7.59 240,000 $ 7.59 Market Vesting Options Weighted Average Weighted Weighted Remaining Average Average Range of Exercise Number Contractual Exercise Options Exercise Prices between Outstanding Life Price Exercisable Price $0.01 - $4.00 733,334 1.13 $ 3.00 - $ - Market Vesting Options Time Vesting Options Performance Vesting Options Weighted Weighted Weighted Average Average Average Options Exercise Options Exercise Options Exercise Date/Activity Outstanding Price Outstanding Price Outstanding Price Balance, December 31, 2022 633,334 3.00 662,910 10.02 240,000 $ 7.59 Granted 100,000 3.00 - - - - Forfeited or expired - - ( 112 ) 162.00 - - Balance, December 31, 2023 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 . F- 31 Table of Contents Valuation Information for Stock-Based Compensation For purposes of determining estimated fair value under FASB ASC 718 - 10, Stock Compensation , the Company computed the estimated fair values of stock options using the Black-Scholes model. Amendment to Performance Options On June 1, 2020, Rick Mills, CEO, and Will Logan, CFO, were issued ten -year options to purchase 160,000 and 80,000 shares of common stock (the “Performance Options”), respectively, which vest in equal installments over a three -year period ( 2020 - 2022 ), subject to satisfying the Company revenue 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 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) 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), (b) non-recurring transaction expenses associated with the Merger and the capital raising financing activities of the Company to effectuate the Merger, and (c) any write-down or write-off of any Company inventory of Safe Space Solutions products. (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. F- 32 Table of Contents 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 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 Guaranteed Total Executive $ 6.00 $ 9.00 $ 12.00 $ 15.00 $ 18.00 Price Shares Mills Shares Vested 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 50,000 200,000 Percentage of Shares Vested 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. These values were calculated using the following weighted average assumptions: Risk-free interest rate 3.30 % Expected term (in years) 2.68 Expected price volatility 123.53 % Dividend yield 0 % 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. 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. These values were calculated using the following weighted average assumptions: Risk-free interest rate 1.60 % Expected term (in years) 6.25 Expected price volatility 97.78 % Dividend yield 0 % F- 33 Table of Contents On June 1, 2020 the Board of Directors of the Company granted 10 -year options to purchase an aggregate of 526,667 shares of its common stock to employees of the Company subject to shareholder approval of an increase in the reserve of shares authorized for issuance under the Company’s 2014 Stock Incentive Plan (the “Plan”). On July 10, 2020, the Company held a special meeting of the Company’s shareholders at which the shareholders approved the amendment to the Plan, which increased the reserve of shares authorized for issuance thereunder to 2,000,000 shares. The options awarded vest over 3 years and have an exercise price of $ 7.59 , the market value of the Company’s common stock on the grant date. The fair value of the options on the grant date was $ 5.61 and was determined using the Black-Scholes model. These values were calculated using the following weighted average assumptions: Risk-free interest rate 0.66 % Expected term (in years) 6.25 Expected price volatility 89.18 % Dividend yield 0 % Stock Compensation Expense Information ASC 718 - 10, Stock Compensation , requires measurement and recognition of compensation expense for all stock-based payments including warrants, stock options, restricted stock grants and stock bonuses based on estimated fair values. Under the Amended and Restated 2006 Equity Incentive Plan, the Company reserved 573,334 shares for purchase by the Company’s employees and under the Amended and Restated 2006 Non-Employee Director Stock Option Plan the Company reserved 233,334 shares for purchase by the Company’s employees. There are 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 1,632,242 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, 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, 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, 2023 and December 31, 2022, the Company issued shares issuable in exchange for services in the amount of $ 55 and $ 100 , respectively. F- 34 Table of Contents NOTE 13: 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. NOTE 14: LEASES The Company's lease portfolio is primarily comprised of operating leases for office space and finance leases for computer equipment. 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. Leases may include one or more options to renew. We do not assume renewals in our determination of the lease term unless the renewals are deemed to be reasonably assured at lease commencement. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. 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: Year Ended December 31, 2023 2022 Assets Operating lease assets Operating lease right-of-use assets $ 1,041 $ 1,584 Finance lease assets Property and equipment, net 146 - Total leased assets $ 1,187 $ 1,584 Liabilities Short-term: Operating lease obligation Current maturities of operating leases $ 505 $ 711 Finance lease obligation Accrued expenses and other current liabilities 42 - Long-term Operating lease obligation Long-term obligations under operating leases 536 873 Finance lease obligation Other non-current liabilities 104 - Total lease obligations $ 1,187 $ 1,584 F- 35 Table of Contents 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: Year Ended December 31, 2023 2022 Operating lease expense: Operating lease expense $ 753 $ 579 Finance lease expense: Amortization of right-of-use assets 23 - Interest on lease obligations 5 - Total lease expense $ 781 $ 579 The following table provides lease term and discount rate information related to operating leases as of December 31, 2023: Year Ended December 31, 2023 Weighted average remaining lease term (years) Operating leases 2.6 Finance leases 3.4 Weighted average discount rate Operating leases 10.0 % Finance leases 5.7 % The following table sets forth the scheduled maturities of lease obligations as of December 31, 2023: Operating Finance Total Leases Leases Leases 2024 $ 536 $ 49 $ 585 2025 451 48 499 2026 111 44 155 2027 105 19 124 Total undiscounted cash flows $ 1,203 $ 160 $ 1,363 Less imputed interest ( 162 ) ( 14 ) ( 176 ) Present value of lease liabilities $ 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: Year Ended Year Ended December 31, December 31, 2023 2022 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows paid for operating leases $ 753 $ 597 Operating cash flows paid for finance leases $ 5 $ - Financing cash flows paid for finance leases $ 23 $ - Right-of-use assets obtained in exchange for new finance lease liabilities $ 169 $ - F- 36 Table of Contents NOTE 15: PROFIT-SHARING PLAN We have a defined contribution 401 (k) retirement plans for eligible associates in the United States. Associates may contribute up to 15 % of their pretax compensation to the plan subject to IRS limitations. 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. 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. F-37