What changed in this filing

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Item 1. Financial Statements

2024-11-13 compared with 2024-08-14 · 139 added, 133 removed, 547 unchanged (33% of the section changed)

3 unchanged sentences

(in thousands, except per share amounts)

September 30,

Current Assets:

2 unchanged sentences

Accounts receivable, net

11,300 12,468

Inventories, net

44 unchanged sentences

For the Three Months Ended

For the Six Months Ended

For the Nine Months Ended

September 30,

Services and other

13 unchanged sentences

Total other expenses (income)

Net loss before income taxes

Provision for income taxes

Basic loss per common share

Diluted loss per common share

Net income (loss) before income taxes

Benefit (provision) for income taxes

Net income (loss)

Basic earning (loss) per common share

Diluted earning (loss) per common share

Weighted average shares outstanding - basic

4 unchanged sentences

(in thousands)

Six Months Ended

Nine Months Ended

September 30,

Operating Activities:

$ ( 724 ) $ ( 2,425 )

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

11 unchanged sentences

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

Proceeds from sale of common stock, net of offering expenses

Proceeds from borrowings under revolving credit facility

2 unchanged sentences

Repayment of term debt

( 15,147 ) ( 2,504 )

Principal payments on finance leases

Net cash used in financing activities

( 1,535 ) ( 2,510 )

Increase in Cash and Cash Equivalents

Increase (decrease) 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 June 30, 2024

Balance as of March 31, 2024

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

Stock-based compensation

- - - ( 615 ) ( 615 )

Three Months Ended September 30, 2024

Balance as of June 30, 2024

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

Six Months Ended June 30, 2024

Stock-based compensation

Balance as of September 30, 2024

Nine Months Ended September 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 September 30, 2024

Three Months Ended September 30, 2023

Balance as of June 30, 2023

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

Three Months Ended June 30, 2023

Balance as of 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

Issuance of common stock, net

Balance as of September 30, 2023

Nine Months Ended September 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

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

Issuance of common stock, net

Balance as of September 30, 2023

See accompanying notes to condensed consolidated financial statements.

20 unchanged sentences

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 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 .

At September 30, 2024, the Company has an accumulated deficit of $ 54,016 and negative working capital of $ 11,552 .

For the three and nine months ended September 30, 2024, the Company generated operating income of $ 1,136 and $ 1,652 , respectively.

For the nine months ended September 30, 2024, the Company generated positive net cash flows from operations of $ 4,750 .

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 estimated liability for financial statement accounting purposes is $ 10,794 as of September 30, 2024.

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.

49 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 for the six month ended June 30, 2024 and 2023:

The Company had the following activity for its allowance for credit losses for the nine months ended September 30, 2024 and 2023:

September 30,

Balance as of beginning of period

1 unchanged sentence

Write-offs charged against the allowance

( 1 ) ( 228 )

Balance as of end of period

1 unchanged sentence

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:

September 30,

Raw materials

11 unchanged sentences

Considerable management judgment is necessary to estimate the fair value of assets, and accordingly, actual results could vary significantly from such estimates.

Basic and Diluted Loss per Common Share

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

Basic and Diluted Earning (Loss) per Common Share

Basic and diluted earning (loss) 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 6,219,800 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.

Shares reserved for outstanding stock options, including stock options with performance restricted vesting, and warrants totaling 6,219,244 and 7,391,651 at September 30, 2024 and 2023 , respectively, were excluded from the computation of loss per share for the nine months ended September 2024 and 2023, as the options and warrants were anti-dilutive.

Shares reserved for outstanding stock options, including stock options with performance restricted vesting, and warrants totaling 3,363,741 at September 30, 2024 were excluded from the computation of earning per share for the three months ended September 30, 2024, as the options and warrants were anti-dilutive.

Shares reserved for outstanding stock options, including stock options with performance restricted vesting, and warrants totaling 7,391,651 at September 30, 2023 were excluded from the computation of loss per share for the three months ended September 30, 2023, 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 June 30, 2024 and December 31, 2023.

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

Goodwill and Intangible Assets

9 unchanged sentences

Contingent Consideration

On November 12, 2021, the Company, Reflect, and other parties, 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.

The Merger Agreement requires the Company to pay to the former 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 (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.

Accordingly, the amount of the Company's potential liability related to the contingent consideration is recorded at $ 19.20 per share.

On November 12, 2021, the Company, Reflect, CRI Acquisition Corporation, a direct wholly owned subsidiary of the Company (“CRI Acquisition”), and RSI Exit Corporation, representative of the former Reflect stockholders (“RSI”), entered into an Agreement and Plan of Merger (as amended on February 8, 2022 and February 11, 2023, the “Merger Agreement”), pursuant to which CRI Acquisition merged with and into Reflect, with Reflect surviving the merger and becoming our wholly owned subsidiary (the “Merger”).

At the effective time of the Merger, which occurred on February 17, 2022, all shares of Reflect’s capital were converted into the right to receive cash and a total of 2,333,334 shares of Creative Realities common stock (the “Merger Shares”).

The Merger Agreement also requires the Company to pay to the former Reflect stockholders additional contingent 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 Merger Shares on the Guarantee Date is less than $ 6.40 per share (such applicable amount, the “Guaranteed Price”), multiplied by the number of Merger Shares held by the Reflect stockholders on the Guarantee Date.

On March 23, 2023, after the closing of the Merger, the Company completed a 1 -for- 3 reverse stock split (the “Reverse Split”) primarily intended to bring the Company into compliance with the minimum bid price requirements to maintain the listing of its common stock on the Nasdaq Capital Market.

As a result of the Reverse Split, the number of Merger Shares decreased from 2,333,334 to 777,778 .

The Company and RSI have engaged in discussions regarding the impact that the Reverse Split had on the calculation of the Guaranteed Consideration, given that the Merger Agreement provides for a Guaranteed Price of $6.40 per share and does not provide for any adjustment to the Guaranteed Price as a result of the Reverse Stock Split or other similar transaction with respect to the Company’s common stock.

To date, the Company and RSI have not reached any agreement regarding the methodology for calculating Guaranteed Consideration under the plain terms of the Merger Agreement.

The contingent liability associated with the Guaranteed Consideration is recorded in the Company’s Condensed Consolidated Balance Sheets at fair value and is remeasured at each reporting period in accordance with ASC 805 - 30 - 35 - 1 using a Monte Carlo simulation model.

For financial statement purposes, consistent with prior reporting periods since the Reverse Split, the Company has and continues to book a contingent liability as of September 30, 2024 related to the Guaranteed Consideration as though the Reverse Split increased the Guaranteed Price from $6.40 per share to $ 19.20 per share, thereby recording an estimated potential liability for contingent consideration, at fair value of $ 10,794 .

The contingent liability, at fair value, as of September 30, 2024 related to the Guaranteed Consideration that would be calculated using a Guaranteed Price of $6.40 per share would result in an estimated liability of $ 1,447 .

The Company engaged an outside independent valuation firm to calculate the fair value of the Guaranteed Consideration at both the $6.40 and $19.20 Guaranteed Prices.

While we believe that the Merger Agreement provides no adjustment to the Guaranteed Price as a result of the Reverse Split, resulting in a lower amount of Guaranteed Consideration than the contingent liability reflected in our financial statements, no assurance can be provided that our interpretation of the Merger Agreement will ultimately be accepted by RSI and the former Reflect stockholders, or by any arbitrator or court that ultimately adjudicates the matter.

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.

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 (which amount has not been adjusted as a result of the Reverse Split).

FAIR VALUE MEASUREMENT

13 unchanged sentences

The Company applies ASC 606 for revenue recognition.

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

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

September 30,

(in thousands)

50 unchanged sentences

SUPPLEMENTAL CASH FLOW STATEMENT INFORMATION

Six Months Ended

Nine Months Ended

September 30,

Supplemental non-cash investing activities

9 unchanged sentences

Intangible Assets

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

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

September 30,

Technology platform

5 unchanged sentences

Net book value of amortizable intangible assets

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.

For the three months ended September 30, 2024 and 2023 , amortization of intangible assets charged to operations was $ 1,081 and $ 766 , respectively.

For the nine months ended September 30, 2024 and 2023 , amortization of intangible assets charged to operations was $ 2,749 and $ 2,274 , 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, evaluated on an annual basis at September 30th each fiscal year, when an event occurs, or circumstances change that would indicate potential impairment.

The assessment may be performed quantitatively or qualitatively.

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 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 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.

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

Using the quantitative approach, fair value of the reporting unit is 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 gives 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.

Using the qualitative approach, the Company reviews macroeconomic conditions, industry and market conditions and entity specific factors, including strategies and financial performance for potential indicators of impairment.

The Company performed its annual impairment of goodwill qualitatively in 2024, and quantitatively in 2023 to determine whether it is more likely than not that the fair value of our reporting unit is below its carrying amount.

The Company recognizes that any changes in our actual fourth quarter 2024 or projected 2025 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.

2 unchanged sentences

Debt for the Company consists of the following:

September 30,

Debt Instrument

13 unchanged sentences

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 requires the Company to pay the entire unpaid principal balance of the revolving credit facility on the maturity date, 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.

9 unchanged sentences

≥ 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.

The effective interest rate at September 30, 2024 was 7.81 %.

The Company pays accrued interest monthly on the first day of each successive calendar month.

The Company incurred $ 306 of deferred financing costs that were capitalized and recorded as other non-current assets within the Condensed Consolidated Balance Sheets.

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

The Company had $ 10,979 in outstanding borrowings under the revolving credit facility as of September 30, 2024.

Total availability under the revolving facility was $ 7,121 , 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.

As of September 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 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.

For the three months ended September 30, 2024, we reported tax expense of $ 192 , compared to a tax benefit of $ 15 for the three months ended September 30, 2023.

For the nine months ended September 30, 2024 and 2023, we reported tax expense of $ 226 and $ 73 , respectively.

At September 30, 2024 , the net deferred tax liabilities were $ 229 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 September 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 3.36 and 4.11 years at September 30, 2024 and December 31, 2023, respectively.

STOCK-BASED COMPENSATION

8 unchanged sentences

Performance Vesting Options

240,000 5.67 $ 7.59 240,000 $ 7.59

240,000 5.67 $ 7.59 240,000

Market Vesting Options

733,334 0.38 $ 3.00 - $ -

733,334 0.38 $ 3.00 -

Performance Vesting

3 unchanged sentences

Balance, December 31, 2023

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

Forfeited or expired

Balance, June 30, 2024

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

- - ( 3,890 ) 57.01 - -

Balance, September 30, 2024

733,334 3.00 658,908 9.72 240,000 $ 7.59

The weighted average remaining contractual life for options exercisable is 5.36 years as of September 30, 2024 .

Employee Awards

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.

Stock-based compensation expense recognized for the issuance of stock options to employees for the three and nine months ended September 30, 2024 of $ 3 and $ 9 , 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 nine months ended September 30, 2023 of $3 and $ 379 , respectively, was included in general and administrative expense in the Condensed Consolidated Financial Statements.

At September 30, 2024 , there was $ 5 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 5 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 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.

Stock-based compensation expense recognized for the issuance of stock options to our non-employee Board of Directors, for the three and nine months ended September 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 nine months ended September 30, 2023 of $ 43 and $ 129 , respectively, was included in general and administrative expense in the Condensed Consolidated Financial Statements.

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

SIGNIFICANT CUSTOMERS/VENDORS

Significant Customers

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 .

We had three customers that accounted for 16 %, 15 %, and 12 % of accounts receivable at September 30, 2024 and three customers that accounted for 28 %, 25 %, and 11 % of accounts receivable at December 31, 2023.

We had two customers that accounted for 14 %, and 12 % of revenue for the three months ended September 30, 2024 , compared to two customers that accounted for 20 %, and 14 % of revenue for the three months ended September 30, 2023 .

We had one customer that accounted for 12 % of revenue for the nine months ended September 30, 2024 , compared to two customers that accounted for 13 % and 10 % of revenue for the nine months ended September 30, 2023 .

Significant Vendors

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.

We had one vendor that accounted for 26 % of outstanding accounts payable at September 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

1 unchanged sentence

Although we believe that, in making any such statement, our expectations are based on reasonable assumptions, any such statement may be influenced by factors that could cause actual outcomes and results to be materially different from those projected.

When used in the following discussion, the words “anticipates,” “believes,” “expects,” “intends,” “plans,” “estimates,” “projects,” “should,” “may,” “propose,” and similar expressions (or the negative versions of such words or expressions), as they relate to us or our management, are intended to identify such forward-looking statements.

When used in the following discussion, the words “anticipates,” “believes,” “expects,” “intends,” “plans,” “estimates,” “projects,” “should,” “may,” “proposes,” and similar expressions (or the negative versions of such words or expressions), as they relate to us or our management, are intended to identify such forward-looking statements.

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, 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.

Factors that could cause actual results to differ materially from those anticipated are set forth under the caption “Risk Factors” in this Report on Form 10-Q, 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.

61 unchanged sentences

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

Our platforms:

Our platforms include:

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

18 unchanged sentences

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

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

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

ended September 30,

Cost of sales

2 unchanged sentences

Total operating expenses

Operating income (loss)

Operating income

Other expenses (income):

1 unchanged sentence

Change in fair value of contingent consideration

Loss on debt extinguishment

Other expense (income)

Total other expenses (income)

Net loss before income taxes

Net income (loss) before income taxes

Provision for income taxes

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.

Net income (loss)

Sales increased $2,874, or 25%, for the three months ending September 30, 2024 as compared to the same period in 2023.

Hardware revenues were $5,241, an increase of $394, or 8%, for the three months ending September 30, 2024 as compared to the same period in 2023.

Services and other revenues were $9,201, an increase of $2,480 or 37%, 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.

Installation services revenue tripled from $967 for the three months ending September 30, 2023 to $2,911 for the three months ending September 30, 2024, as a result of significant installation deployment activity during the period.

Managed services revenue, which includes the Company’s SaaS subscription services, were $4,885, an increase of $565, or 13%, 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.

Gross profit margin remained consistent at 46% for the three months ending September 30, 2024 and 2023.

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 $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.

Sales and marketing expenses increased by $224, or 17%, for the three-month period ended September 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) $137 in fixed and variable sales costs as the Company continues to invest in new business development to strengthen its pipeline, and (2) $92 in variable third party media-related commissions.

General and Administrative Expenses

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

General and administrative expenses remained relatively flat, increasing $86, or 2%, during the three months ending September 30, 2024 as compared to the same period in 2023.

Nine Months Ended September 30, 2024 Compared to Nine Months Ended September 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,

For the Nine Months

Ended September 30,

Cost of sales

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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.

Sales increased $9,134, or 30%, for the nine months ending September 30, 2024 as compared to the same period in 2023.

Hardware revenues were $14,409, an increase of $1,803, or 14%, for the nine months ending September 30, 2024 as compared to the same period in 2023.

Services and other revenues were $25,433, an increase of $7,331 or 40%, as compared to the same period in 2023, driven by increases in both installation and managed services revenues.

Installation services revenue were $7,109, an increase of $4,027, or 131%, as compared to the same period in 2023, as a result of significant installation deployment activity during the period.

Managed services revenue, which includes the Company’s SaaS subscription services were $14,506, an increase of $2,279, or 19%, 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%.

Gross profit margin remained consistent at 48% for the nine months ending September 30, 2024 and 2023.

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.

Sales and marketing expenses increased by $989, or 27%, for the nine months ending September 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) $714 in fixed and variable sales costs as the Company continues to invest in new business development to strengthen its pipeline, and (2) $285 in variable third party media-related commissions.

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.

General and administrative expenses increased $1,180, or 10%, during the nine months ending September 30, 2024 as compared to the same period in 2023.

The change is driven by an increase of $1,395 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.

Increases in general and administrative expenses were offset by a $528 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.

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Operating Activities

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.

The net cash provided by operating activities during the nine months ended September 30, 2024 was $4,750, compared to $8,306 for the same period in 2023.

During the nine month period ending September 30, 2024, the Company generated net loss of $478, which included depreciation and amortization expense (inclusive of amortization of debt discount) of $2,901, a loss on the extinguishment of debt of $1,059, and a gain on the change in fair value of contingent consideration of $414.

The Company generated a $905 increase in cash as of September 30, 2024, provided by changes in operating assets and liabilities.

Investing Activities

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.

Net cash used in investing activities during the nine months ended September 30, 2024 was $2,302, compared to $3,138 during the same period in 2023.

We currently do not have any material commitments for capital expenditures as of September 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 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.

Net cash used in financing activities during the nine months ended September 30, 2024 was $4,490, compared to net cash provided from financing activities of $1,575 for the same period in 2023.

Net cash used in financing activities during the nine month period ended September 30, 2024 is primarily the result of the repayment of related party term debt totaling $15,147, partially offset by net proceeds of $10,979 from borrowings and payments under the Company's revolving credit facility.

Off-Balance Sheet Arrangements

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.

During the three and nine months ended September 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