What changed in this filing

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Item 1. Financial Statements

2024-08-14 compared with 2024-05-10 · 201 added, 144 removed, 479 unchanged (42% of the section changed)

26 unchanged sentences

Current maturities of operating leases

Short-term portion of related party Acquisition Term Loan, net of $ 613 and $ 0 discount, respectively

Short-term portion of related party Consolidation Term Loan, net of $ 655 and $ 747 discount, respectively

Short-term portion of related party term debt

Short-term portion of contingent consideration, at fair value

1 unchanged sentence

26,726 20,197

Long-term related party Acquisition Term Loan, net of $ 0 and $ 787 discount, respectively

Long-term related party Consolidation Term Loan, net of $ 0 and $ 94 discount, respectively

Revolving credit facility

Long-term related party term debt

Long-term obligations under operating leases

19 unchanged sentences

For the Three Months Ended

For the Six Months Ended

Services and other

4 unchanged sentences

Sales and marketing expenses

Research and development expenses

General and administrative expenses

Depreciation and amortization expense

Total operating expenses

Operating loss

Operating income (loss)

Other expenses (income):

Interest expense, including amortization of debt discount

Change in fair value of contingent consideration

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

Loss on debt extinguishment

Other expense (income)

10 unchanged sentences

(in thousands)

Three Months Ended

Six Months Ended

Operating Activities:

$ ( 724 ) $ ( 2,425 )

Adjustments to reconcile net loss to net cash provided by operating activities

2 unchanged sentences

Amortization of stock-based compensation

Amortization of deferred financing costs

Loss on extinguishment of debt

Bad debt expense

Provision for inventory reserves

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

2 unchanged sentences

Accounts receivable

Inventories, net

Prepaid expenses and other current assets

( 299 ) 1,035

Accounts payable

( 2,630 ) ( 585 )

Accrued expenses and other current liabilities

4 unchanged sentences

Purchases of property and equipment

( 8 ) ( 219 )

Capitalization of labor for software development

( 1,487 ) ( 1,984 )

Net cash used in investing activities

( 1,495 ) ( 2,203 )

Financing activities

Repayment of Consolidation Term Loan

Repayment of Secured Promissory Note

Repayment of Term Loan (2022)

Proceeds from borrowings under revolving credit facility

Repayment of borrowings under revolving credit facility

Payment of deferred financing costs

Repayment of term debt

( 15,147 ) ( 2,504 )

Principal payments on finance leases

Net cash used in financing activities

Increase (decrease) in Cash and Cash Equivalents

( 1,535 ) ( 2,510 )

Increase in Cash and Cash Equivalents

Cash and Cash Equivalents, beginning of period

Cash and Cash Equivalents, end of period

$ 4,086 $ 3,264

See accompanying notes to condensed consolidated financial statements.

2 unchanged sentences

(in thousands, except shares)

Three Months Ended March 31, 2024

Three Months Ended June 30, 2024

Balance as of March 31, 2024

10,446,659 $ 104 $ 82,200 $ ( 53,455 ) $ 28,849

Stock-based compensation

- - - ( 615 ) ( 615 )

Balance as of June 30, 2024

10,446,659 $ 104 $ 82,203 $ ( 54,070 ) $ 28,237

Six Months Ended June 30, 2024

Balance as of December 31, 2023

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

Stock-based compensation

Shares issued to employees pursuant to the Retention Bonus Plan

37,632 - 124 - 124

- - - ( 724 ) ( 724 )

Balance as of June 30, 2024

10,446,659 $ 104 $ 82,203 $ ( 54,070 ) $ 28,237

Three Months Ended June 30, 2023

Balance as of March 31, 2023

Three Months Ended March 31, 2023

7,394,407 $ 74 $ 76,417 $ ( 51,409 ) $ 25,082

Stock-based compensation

- - 171 - 171

Shares issued to vendors as compensation

14,620 - 30 - 30

- - - ( 1,425 ) ( 1,425 )

Balance as of June 30, 2023

7,409,027 $ 74 $ 76,618 $ ( 52,834 ) $ 23,858

Six Months Ended June 30, 2023

Balance as of December 31, 2022

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

Stock-based compensation

- - 414 - 414

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

Balance as of March 31, 2023

62,475 1 138 - 139

- - - ( 2,425 ) ( 2,425 )

Balance as of June 30, 2023

7,409,027 $ 74 $ 76,618 $ ( 52,834 ) $ 23,858

See accompanying notes to condensed consolidated financial statements.

17 unchanged sentences

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

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 Quarterly Report on Form 10 -Q (“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.

Liquidity and Financial Condition

1 unchanged sentence

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 Condensed Consolidated Financial Statements are issued.

At March 31, 2024 , the Company has an accumulated deficit of $ 53,455 , negative working capital of $ 22,418 , including current debt obligations of $ 12,770 , and cash of $ 2,899 .

For the three months ended March 31, 2024 , the Company incurred an operating loss of $ 76 and generated positive net cash flows from operations of $ 1,938 .

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 $ 3,593 during the twelve months subsequent to the reporting date of these Condensed 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 $ 10,603 , each of which mature on February 17, 2025.

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

At June 30, 2024, the Company has an accumulated deficit of $ 54,045 and negative working capital of $ 9,184 .

For the six months ended June 30, 2024, the Company generated operating income of $ 516 and positive net cash flows from operations of $ 4,206 .

The Company’s contingent consideration obligation is dependent upon the market value of the Company’s share price at a future date, February 17, 2025, and contractually must be settled in cash.

The estimate for financial statement accounting purposes is $ 10,196 as of June 30, 2024.

While the Company is currently generating cash from operations and has refinanced its debt, the Credit Agreement (as defined in Note 7 below) limits, via specific reserve, utilization of the Company’s line of credit to no more than $ 4,000 for payments to satisfy the contingent consideration.

Should the contingent consideration require a cash payment at maturity in excess of the Company’s availability under the Credit Agreement, inclusive of such reserve, the Company may not have sufficient liquidity to settle this obligation without receipt of a waiver under the Credit Agreement or a reduction in the amount of the contingent consideration.

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.

In response to these conditions, the Company continues to evaluate its available options for amending its debt facilities or accessing the capital markets via equity financing.

However, these plans have not been finalized, are subject to market conditions, in some respects 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.

8 unchanged sentences

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

Certain amounts have been reclassified to conform to current period presentation.

The results of operations for the interim periods are not necessarily indicative of results of operations for a full year.

35 unchanged sentences

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

The Company had the following activity for its allowance for credit losses from December 31, 2023 to March 31, 2024 :

Balance as of beginning of year

The Company had the following activity for its allowance for credit losses for the six month ended June 30, 2024 and 2023:

Balance as of beginning of period

Amounts accrued

20 unchanged sentences

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

Shares reserved for outstanding stock options, including stock options with performance restricted vesting, and warrants totaling approximately 6,222,800 and 7,339,582 at March 31, 2024 and 2023 , respectively, were excluded from the computation of loss per share as the strike price on the options and warrants were higher than the Company's market price and therefore anti-dilutive.

Shares reserved for outstanding stock options, including stock options with performance restricted vesting, and warrants totaling approximately 6,219,800 and 7,391,651 at June 30, 2024 and 2023 , respectively, were excluded from the computation of loss per share as the options and warrants were anti-dilutive.

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

2 unchanged sentences

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

We had no uncertain tax positions as of March 31, 2024 and December 31, 2023 .

We had no uncertain tax positions as of June 30, 2024 and December 31, 2023.

Goodwill and Intangible Assets

6 unchanged sentences

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.

valuation of the contingent consideration, 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.

22 unchanged sentences

The Company applies ASC 606 for revenue recognition.

The following table disaggregates the Company’s revenue by major source for the three months ended March 31, 2024 and 2023 :

The following table disaggregates the Company’s revenue by major source for the three and six months ended June 30, 2024 and 2023 :

(in thousands)

$ 4,144 $ 4,322

Managed Services

3 unchanged sentences

Total Hardware and Services

$ 12,285 $ 9,944

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.

1 unchanged sentence

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.

Managed Services

6 unchanged sentences

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.

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

These contracts are generally 12 - 36 months in length and typically have autorenewal terms.

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

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

These agreements are renewable by the customer.

14 unchanged sentences

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

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

Other Services

4 unchanged sentences

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 owner customers to brands and advertisers.

We sell advertising or sponsorship opportunities on behalf of our media network owner customers to brands and advertisers.

We generally do not own the devices that display the sold digital advertising.

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.

The Company invoices advertisers on behalf of our customers and remits the net cash to our customer after 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.

2 unchanged sentences

SUPPLEMENTAL CASH FLOW STATEMENT INFORMATION

Three Months Ended

Six Months Ended

Supplemental non-cash investing activities

2 unchanged sentences

Right-of-use assets obtained in exchange for new finance lease liabilities

Capitalized deferred financing costs in accounts payable

Supplemental disclosure information for cash flow

4 unchanged sentences

Intangible Assets

Intangible assets consisted of the following at March 31, 2024 and December 31, 2023 :

Intangible assets consisted of the following at June 30, 2024 and December 31, 2023:

Technology platform

Purchased and developed software

In-Process internally developed software platform

Internally developed software platform

Customer relationships

2 unchanged sentences

Net book value of amortizable intangible assets

For the three months ended March 31, 2024 and 2023 , amortization of intangible assets charged to operations was $ 790 and $ 754 , respectively.

For the three months ended June 30, 2024 and 2023 , amortization of intangible assets charged to operations was $ 878 and $ 755 , respectively.

For the six months ended June 30, 2024 and 2023 , amortization of intangible assets charged to operations was $ 1,668 and $ 1,508 , respectively.

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.

Goodwill is subject to an impairment review at a reporting unit level, evaluated 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.

3 unchanged sentences

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

No indicators of impairment were identified at March 31, 2024.

No indicators of impairment were identified at June 30, 2024.

The Company recognizes that any changes in our projected 2024 results could potentially have a material impact on our assessment of goodwill impairment.

2 unchanged sentences

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.

LOANS PAYABLE

The outstanding debt with detachable warrants, as applicable, are shown in the table below.

Further discussion of the debt follows.

As of March 31, 2024

Debt Instrument

Interest Rate Information

Acquisition Term Loan

8% per annum through maturity

Consolidation Term Loan

10% per annum through maturity

Total debt, gross

Debt discount

Total debt, net

Less current maturities

Long term debt

As of December 31, 2023

Debt for the Company consists of the following:

Debt Instrument

Issuance Date

Maturity Date

Interest Rate Information

Revolving credit facility

Acquisition Term Loan

8% per annum through maturity

Consolidation Term Loan

10% per annum through maturity

Total debt, gross

Debt discount

Deferred financing costs

Total debt, net

Less current maturities

Long term debt

Our largest shareholder and investor, Slipstream, a related party is the holder of all of our outstanding debt instruments, including two term loans, and has beneficial ownership of approximately 29 % of our common stock (on an as-converted, fully diluted basis including conversion of outstanding warrants, and assuming no other convertible securities, options and warrants are converted or exercised by other parties).

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 the Credit Agreement.

The Borrowers include Reflect, which became a wholly owned subsidiary of the Company as a result of the closing of the Merger.

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 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.

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.

Current portion

Total long-term debt, net

On May 23, 2024, the Company entered into a Credit Agreement (the "Credit Agreement") with First Merchants Bank (the "Bank").

The Credit Agreement provides the Company with a $ 22,100 secured revolving credit facility, with an uncommitted accordion feature that provides for additional borrowing capacity of up to $ 5,000 , subject to the Bank's approval and other customary terms and conditions set forth in the Credit Agreement.

The revolving credit facility matures on May 23, 2027, subject to any earlier default under the Credit Agreement.

The Credit Agreement requires the Company to pay the entire unpaid principal balance of the revolving credit facility on the maturity date, May 23, 2027, subject to any earlier default under the Credit Agreement.

The Credit Agreement includes, among other things, the occurrence of any event which could reasonably be anticipated to cause or result in a “Material Adverse Effect” (as defined in the Credit Agreement) as an event of default under which the outstanding balance could become due and payable to the Bank.

The Company has determined that the risk of such event is not probable and therefore has classified the outstanding balance in long-term liabilities in the Condensed Consolidated Balance Sheets based on the maturity date.

On May 23, 2024, the Company borrowed $ 13,667 under the revolving credit facility to repay all obligations owing to its prior lender, Slipstream Communications, LLC, including the outstanding principal balance of $ 10,000 on the Acquisition Term Loan, the outstanding principal balance of $ 3,593 on the Consolidation Term Loan and accrued interest expense incurred through the payoff date of $ 74 .

The Company recognized a $ 1,059 loss on extinguishment of debt equal to the unamortized portion of debt discount at May 23, 2024 associated with the Acquisition Term Loan and Consolidation Term Loan.

The revolving credit facility accrues interest at a floating rate equal to the 1 -month SOFR, plus 0.11 %, plus a floating margin ranging from 2.00 % to 3.50 % that adjusts quarterly, depending upon the Company's Senior Funded Debt to EBITDA Ratio.

The floating margin is determined as follows:

Senior Funded Debt to EBITDA Ratio

Floating Margin

≥ 1.00 to 1.00 but < 2.00 to 1.00

≥ 2.00 to 1.00 but < 3.00 to 1.00

≥ 3.00 to 1.00

The effective interest rate at June 30, 2024 was 8.93 %.

The Company shall pay accrued interest monthly on the first day of each successive calendar month, beginning July 1, 2024, and continuing thereafter.

The Company incurred $ 281 of deferred financing costs that were capitalized during the three months ended June 30, 2024 and recorded as other non-current assets within the Condensed Consolidated Balance Sheets.

Deferred financing costs will be amortized as interest expense over the respective debt instrument period, 36 months.

The Company had $ 13,819 in outstanding borrowings under the revolving credit facility as of June 30, 2024.

Total availability under the revolving facility was $ 4,281 , after accounting for $ 4,000 reserved under the Credit Agreement until resolution of the Contingent Consideration.

As of June 30, 2024, the Company was in compliance with all applicable debt covenants.

COMMITMENTS AND CONTINGENCIES

5 unchanged sentences

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

For the three months ended March 31, 2024 and 2023 , we reported tax liability of $ 9 and $ 43 , respectively.

At March 31, 2024 , the net deferred tax liabilities were $ 77 after valuation allowance, compared to net tax liabilities of $ 73 at December 31, 2023 .

The Company had outstanding warrants accounted for as equity instruments in the Company's Condensed Consolidated Financial Statements totaling 4,587,002 at March 31, 2024 and December 31, 2023 with a weighted average exercise price of $ 4.90 .

The weighted average remaining contractual life of the outstanding warrants was 3.86 and 4.11 at March 31, 2024 and December 31, 2023 , respectively.

For the three months ended June 30, 2024 and 2023 , we reported tax liabilities of $ 25 and $ 45 , respectively.

At June 30, 2024 , the net deferred tax liabilities were $ 95 after valuation allowance, compared to net tax liabilities of $ 73 at December 31, 2023.

The Company had outstanding warrants accounted for as equity instruments in the Company's Condensed Consolidated Financial Statements totaling 4,587,002 at June 30, 2024 and December 31, 2023 with a weighted average exercise price of $ 4.90 .

The weighted average remaining contractual life of the outstanding warrants was 3.61 and 4.11 at June 30, 2024 and December 31, 2023, respectively.

STOCK-BASED COMPENSATION

15 unchanged sentences

Forfeited or expired

Balance, March 31, 2024

The weighted average remaining contractual life for options exercisable is 5.84 years as of March 31, 2024 .

Balance, June 30, 2024

The weighted average remaining contractual life for options exercisable is 5.61 years as of June 30, 2024 .

Employee Awards

Stock-based compensation expense recognized for the issuance of stock options to employees for the three months ended March 31, 2024 and 2023 of $ 3 and $ 225 , respectively, was included in general and administrative expense in the Condensed Consolidated Financial Statements.

At March 31, 2024 , there was $ 12 of total unrecognized compensation expense related to unvested share-based awards with market vesting criteria for employees.

Stock-based compensation expense recognized for the issuance of stock options to employees for the three and six months ended June 30, 2024 of $ 3 and $ 6 , respectively, was included in general and administrative expense in the Condensed Consolidated Financial Statements.

Stock-based compensation expense recognized for the issuance of stock options to employees for the three and six months ended June 30, 2023 of $ 151 and $ 377 , respectively, was included in general and administrative expense in the Condensed Consolidated Financial Statements.

At June 30, 2024 , there was $ 9 of total unrecognized compensation expense related to unvested share-based awards with market vesting criteria for employees.

Compensation expense related to market vesting options will be recognized over the next 8 months and will be adjusted for any future forfeitures as they occur.

Non-Employee Awards

Stock-based compensation expense recognized for the issuance of stock options to our non-employee Board of Directors, for the three months ended March 31, 2024 and 2023 was $ 0 and $ 43 and included in general and administrative expense in the Condensed Consolidated Financial Statements.

At March 31, 2024 , there was no unrecognized compensation expense related to share-based awards for non-employee directors.

Stock-based compensation expense recognized for the issuance of stock options to our non-employee Board of Directors, for the three and six months ended June 30, 2024 was $ 0 and included in general and administrative expense in the Condensed Consolidated Financial Statements.

Stock-based compensation expense recognized for the issuance of stock options to our non-employee Board of Directors for the three and six months ended June 30, 2023 of $ 43 and $ 86 , respectively, was included in general and administrative expense in the Condensed Consolidated Financial Statements.

At June 30, 2024 , there was no unrecognized compensation expense related to share-based awards for non-employee directors.

SIGNIFICANT CUSTOMERS/VENDORS

Significant Customers

We had four customers that accounted for 19 %, 12 %, 12 %, and 11 % of accounts receivable at March 31, 2024 and three customers that accounted for 28 %, 25 %, and 11 % of accounts receivable at December 31, 2023 .

We had four customers that accounted for 13 %, 12 %, 11 %, and 10 % of revenue for the three months ended March 31, 2024 , compared to two customers that accounted for 31 % and 13 % of revenue for the three months ended March 31, 2023 .

We had three customers that accounted for 18 %, 17 %, and 13 % of accounts receivable at June 30, 2024 and three customers that accounted for 28 %, 25 %, and 11 % of accounts receivable at December 31, 2023.

We had four customers that accounted for 13 %, 13 %, 11 %, and 10 % of revenue for the three months ended June 30, 2024 , compared to three customers that accounted for 13 %, 11 %, and 10 % of revenue for the three months ended June 30, 2023 .

We had three customers that accounted for 13 %, 12 % and 10 % of revenue for the six months ended June 30, 2024 , compared to two customers that accounted for 19 % and 11 % of revenue for the six months ended June 30, 2023 .

Significant Vendors

We had two vendors that accounted for 26 % and 13 % of outstanding accounts payable at March 31, 2024 , and one vendor that accounted for 38 % of outstanding accounts payable at December 31, 2023 .

We had one vendor that accounted for 28 % of outstanding accounts payable at June 30, 2024 , and one vendor that accounted for 38 % of outstanding accounts payable at December 31, 2023.

Management ’ s Discussion and Analysis of Financial Condition and Results of Operations

3 unchanged sentences

These forward-looking statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from those anticipated, and many of which are beyond our control.

Factors that could cause actual results to differ materially from those anticipated are set forth under the caption “Risk Factors” in the Company’s Form 10-K for the year ended December 31, 2023, as filed with the Securities and Exchange Commission on March 21, 2024.

Factors that could cause actual results to differ materially from those anticipated are set forth under the caption “Risk Factors” in the Company’s Form 10-K for the year ended December 31, 2023 as filed with the Securities and Exchange Commission on March 21, 2024, as amended on April 26, 2024, and in the Company's Quarterly Report on Form 10-Q filed with the SEC on May 10, 2024.

Our actual results, performance or achievements could differ materially from those expressed in, or implied by, forward-looking statements.

50 unchanged sentences

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

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

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

Our Sources of Revenue

18 unchanged sentences

Our Operating Expenses

Our operating expenses are primarily comprised of three categories:

sales and marketing, research and development, and general and administrative.

Our operating expenses are comprised of sales and marketing, and general and administrative expenses.

Sales and marketing expenses include salaries and benefits for our sales, business development solution management and marketing personnel, and commissions paid on sales.

This category also includes amounts spent on marketing networking events, promotional materials, hardware and software to prospective new customers, including those expenses incurred in trade shows and product demonstrations, and other related expenses.

Our research and development expenses represent the salaries and benefits of those individuals who develop and maintain our proprietary software platforms and other software applications we design and sell to our customers.

Our general and administrative expenses consist of corporate overhead, including administrative salaries, real property lease payments, salaries, and benefits for our corporate officers and other expenses such as legal and accounting fees.

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

Three Months Ended March 31, 2024 Compared to Three Months Ended March 31, 2023

Three Months Ended June 30, 2024 Compared to Three Months Ended June 30, 2023

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

For the three months

ended March 31,

ended June 30,

Cost of sales

Sales and marketing expenses

Research and development expenses

General and administrative expenses

Depreciation and amortization expense

Total operating expenses

Operating loss

Operating income (loss)

Other expenses (income):

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Change in fair value of contingent consideration

Loss on debt extinguishment

Other expense (income)

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Provision for income taxes

Sales increased $2,341, or 24%, for the three-month period ended March 31, 2024 as compared to the same period in 2023.

Hardware revenues were $4,144, a decrease of $178, or 4%, for the three-month period ended March 31, 2024 as compared to the same period in 2023.

While hardware revenues were effectively flat year over year, the composition in each period was substantially different, with the current period comprised of lower customer concentration (including no customer greater than 20% of hardware revenues) and an increasing number of customers making consistent, repeated purchases of similar solutions on a regular cadence.

The prior period included a single customer that represented 62% of hardware revenues.

Sales increased $3,919, or 43%, for the three months ending June 30, 2024 as compared to the same period in 2023.

Hardware revenues were $5,024, an increase of $1,587, or 46%, for the three months ending June 30, 2024 as compared to the same period in 2023.

Services and other revenues were $8,091, an increase of $2,332 or 40%, driven by increases in both installation and managed services revenues.

Installation services revenue increased $870, or 74%, as a result of significant installation deployment activity during the period.

Managed services revenue, which includes both SaaS and help desk technical subscription services were $4,774, an increase of $702, or 17%.

The increase was driven by a combination of an increase in the quantity of licenses subject to software subscriptions on our platforms and an expansion in the average price per subscription license per month.

The annual recurring run rate of our subscription license revenue, our highest margin service, grew 11% from $14,826 as of December 31, 2022 to $16,336 as of December 31, 2023 and has since expanded to $17,689 as of March 31, 2024.

Gross profit increased $675, or 13%, for the three-month period ended March 31, 2024 as compared to the same period in 2023 driven by a 17% increase in our managed service revenue, which is our highest margin, typically subscription-based revenue.

Gross profit margin decreased to 47% from 51% driven by revenue mix during the current period as installation services, which is historically our lowest margin service, increased to 18% of total revenue as compared to 10% of total revenues in the prior period.

Managed services revenue, which includes the Company’s SaaS subscription services, were $4,849, an increase of $1,014, or 26%, as compared to the same period in 2023.

An increase in the quantity of licenses subject to software subscriptions on our platforms and an expansion in the average price per subscription license per month in part as a result of price increases during contract renewals drove the increase.

Gross profit margin increased to 52% from 47% for the three months ending June 30, 2024 and 2023, driven primarily by economies of scale and reducing costs of delivery as a percentage of revenue as the Company increases revenue in any given period.

While the Company’s revenue mix was less favorable in the current year (based on gross profit margins of the types of revenues), the overall revenue growth in hardware, installation services, managed services, and other services ultimately drove increased gross profit and enhanced gross profit margins.

The Company anticipates further margin expansion as revenue expands more quickly than the associated cost of deployment and support of those enhanced levels of revenue.

Sales and Marketing Expenses

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

Sales and marketing expenses increased by $329, or 29%, for the three-month period ended March 31, 2024 as compared to the same period in 2023, driven primarily by the Company’s enhanced investments into sales and marketing activities, including incremental sales personnel and increased participation in industry trade show events.

Research and Development Expenses

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

The Company capitalizes certain of these expenses and amortizes those costs through the Condensed Consolidated Statements of Operations on a straight-line basis over the economic useful life of the software feature or functionality.

Research and development expenses increased by $142, or 39%, for the three-month period ended March 31, 2024 as compared to the same period in 2023 driven primarily by incremental headcount and a higher rate of bug and maintenance work as compared to capitalized activities during the quarter ended March 31, 2024.

Sales and marketing expenses increased by $436, or 35%, for the three-month period ended June 30, 2024 as compared to the same period in 2023, driven primarily by the Company’s enhanced investments into sales and marketing activities, increases of (1) $247 in fixed and variable sales costs as the Company continues to invest in new business development to strengthen its pipeline, and (2) $169 in variable third party media-related commissions.

General and Administrative Expenses

General and administrative expenses were effectively flat, increasing $130, or 4% during the three months ended March 31, 2024 as compared to the same period in 2023.

The change is driven by an increase of $408 in personnel costs in the current period as a result of higher headcount due to scaled up operations in response to an increase in customer acquisition and associated planned deployments.

This increase was partially offset by a $294 decrease in stock compensation expense in the current period as all outstanding time vested and performance awards for employees and directors were fully expensed as of December 31, 2023.

Depreciation and Amortization Expenses

Depreciation and amortization expenses were effectively flat, increasing $60, or 8%, in the three months ended March 31, 2024 compared to the same period in 2023.

The Company currently expects depreciation and amortization expense to be approximately $800 per quarter for the remainder of 2024.

General and administrative expenses increased $762, or 20% during the three months ending June 30, 2024 as compared to the same period in 2023.

The change is driven by (1) an increase of $672 in personnel costs, including both the Company’s portion of employee benefits and other administrative and processing costs associated with employment, in the current year driven by increased headcount in development and administrative functions to support active and anticipated deployments for a growing number of customers and (2) an increase of $136 in systems infrastructure costs associated with implementation and enhancements to the Company’s operating systems.

We expect these costs to begin reducing as we enter 2025 and sunset legacy applications for which activities have been or will be migrated to the new infrastructure and applications.

Increases in general and administrative expenses were offset by a $191 decrease in stock compensation expense in the current period as all outstanding time vested and performance awards for employees and directors were fully expensed as of December 31, 2023.

Six Months Ended June 30, 2024 Compared to Six Months Ended June 30, 2023

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

For the Six Months

Ended June 30,

Cost of sales

Sales and marketing expenses

General and administrative expenses

Total operating expenses

Operating income (loss)

Other income/(expenses):

Interest expense, including amortization of debt discount

Change in fair value of equity guarantee

Loss on debt extinguishment

Total other income/(expenses)

Net (loss) income before income taxes

Provision from income taxes

Sales increased $6,260, or 33%, for the six months ending June 30, 2024 as compared to the same period in 2023.

Hardware revenues were $9,168, an increase of $1,409, or 18%, for the six months ending June 30, 2024 as compared to the same period in 2023.

Services and other revenues were $16,232, an increase of $4,851 or 43%, as compared to the same period in 2023.

Managed services revenue, which includes the Company’s SaaS subscription services were $9,623, an increase of $1,716, or 22%, as compared to the same period in 2023.

Gross profit margin was approximately 49% for both the six months ending June 30, 2024 and 2023.

The Company’s revenue mix varied in each period, with higher installation services revenue in the current year generating a drag on gross margin, offset by (1) an increase in other services revenue in the current year which generated an average gross margin in excess of the Company’s aggregate average, and (2) a reduction in hardware revenues as a percentage of total revenues in the current year, which typically have gross margins of approximately 20%.

Sales and Marketing Expenses

Sales and marketing expenses increased by $765, or 32%, for the six months ending June 30, 2024 as compared to the same period in 2023, driven primarily by the Company’s enhanced investments into sales and marketing activities, including increases of (1) $471 in fixed and variable sales costs as the Company continues to invest in new business development to strengthen its pipeline, (2) $187 in variable third party media-related commissions, and (3) $121 in industry trade show events.

General and Administrative Expenses

General and administrative expenses increased $1,094, or 14% during the six months ending June 30, 2024 as compared to the same period in 2023.

The change is driven by (1) an increase of $1,318 in personnel costs, including both the Company’s portion of employee benefits and other administrative and processing costs associated with employment, in the current year driven by increased headcount in development and administrative functions to support active and anticipated deployments for a growing number of customers and (2) an increase of $234 in systems infrastructure costs associated with implementation and enhancements to the Company’s operating systems.

We expect these costs to begin reducing as we enter 2025 and sunset legacy applications for which activities have been or will be migrated to our new infrastructure and applications.

Increases in general and administrative expenses were offset by a $485 decrease in stock compensation expense in the current period as all outstanding time vested and performance awards for employees and directors were fully expensed as of December 31, 2023.

Interest Expense

See Note 7 Loans Payable to the Condensed Consolidated Financial Statements for a discussion of the Company’s debt and related interest expense obligations.

See Note 7 Debt to the Condensed Consolidated Financial Statements for a discussion of the Company’s debt and related interest expense obligations.

Changes in fair value of contingent consideration

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

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

See Note 2 Section 11 Summary of Significant Accounting Policies - Contingent Consideration to the Condensed Consolidated Financial Statements for a discussion of the Company's obligations related to the contingent consideration arrangement.

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

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

Loss on extinguishment of debt

The Company recognized a $1,059 loss on extinguishment of debt equal to the remaining unamortized portion of debt discount associated with the Acquisition Term Loan and Consolidation Term Loan as of May 23, 2024, the date the Company entered into the Credit Agreement.

Summary Unaudited Quarterly Financial Information

The following represents unaudited financial information derived from the Company’s quarterly financial statements:

The following non-GAAP data, which adjusts for the categories of expenses described below, is a non-GAAP financial measure.

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

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

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

In addition, EBITDA does not take into account changes in certain assets and liabilities as well as interest and income taxes that can affect cash flows.

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

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

Quarters Ended

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Loss (Gain) on fair value of contingent consideration

Loss on debt extinguishment

Stock-based compensation – Director grants

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Operating Activities

The net cash provided by operating activities during the three months ended March 31, 2024, was $1,938, compared to $3,868 for the same period in 2023.

During the three-month period ending March 31, 2024, the Company generated a net loss of $100, which included depreciation and amortization expense (inclusive of amortization of debt discount) of $1,199 and a gain on the change in fair value of contingent consideration of $605.

The Company generated a $1,441 increase in cash provided by changes in operating assets and liabilities.

The decrease in accounts receivable of $2,952 was effectively offset by a decrease in accounts payable of $2,976.

The net cash provided by operating activities during the six months ended June 30, 2024 was $4,206, compared to $6,344 for the same period in 2023.

During the six month period ending June 30, 2024, the Company generated a net loss of $699, which included depreciation and amortization expense (inclusive of amortization of debt discount) of $1,769, a loss on the extinguishment of debt of $1,059, and a gain on the change in fair value of contingent consideration of $1,012.

The Company generated a $2,368 increase in cash as of June 30, 2024, provided by changes in operating assets and liabilities.

Investing Activities

Net cash used in investing activities during the three months ended March 31, 2024, was $830, compared to $1,034 during the same period in 2023.

We currently do not have any material commitments for capital expenditures as of March 31, 2024;

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

Net cash used in investing activities during the six months ended June 30, 2024 was $1,495, compared to $2,203 during the same period in 2023.

We currently do not have any material commitments for capital expenditures as of June 30, 2024.

The reduction in capital expenditures in 2024 compared to the prior period was anticipated as the Company has been reducing third-party development resources utilized for the previously disclosed modernization and internationalization of our automotive platform, which launched to user acceptance testing during the second quarter of 2024.

Financing Activities

Net cash used in financing activities during the three months ended March 31, 2024, was $1,119, compared $562 for the same period in 2023.

Net cash used in financing activities during the three-month period ended March 31, 2024, is primarily the result of repayments made on the Consolidation Term Loan of $1,109.

Net cash used in financing activities during the six months ended June 30, 2024 was $1,535, compared to $2,510 for the same period in 2023.

Net cash used in financing activities during the six month period ended June 30, 2024 is primarily the result of the repayment of related party term debt totaling $15,147, partially offset by proceeds from borrowings under the Company's revolving credit facility of $13,860.

Off-Balance Sheet Arrangements

During the three months ended March 31, 2024, we did not engage in any off-balance sheet arrangements set forth in Item 303(a)(4) of Regulation S-K.

During the three and six months ended June 30, 2024, we did not engage in any off-balance sheet arrangements set forth in Item 303(a)(4) of Regulation S-K.

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

What changed 10-Q

Item 1. Financial Statements