What changed in this filing

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Item 1. Financial Statements

2025-05-14 compared with 2024-11-13 · 242 added, 221 removed, 465 unchanged (50% of the section changed)

3 unchanged sentences

(in thousands, except per share amounts)

September 30,

Current Assets:

22 unchanged sentences

Current maturities of operating leases

Short-term portion of related party term debt

Short-term portion of contingent consideration, at fair value

Short-term debt

Short-term contingent consideration, at fair value

Total Current Liabilities

1 unchanged sentence

Revolving credit facility

Long-term related party term debt

19,238 13,044

Long-term debt

Long-term obligations under operating leases

Long-term contingent consideration, at fair value

Other non-current liabilities

17 unchanged sentences

For the Three Months Ended

For the Nine Months Ended

September 30,

Services and other

6 unchanged sentences

Total operating expenses

Operating income (loss)

Operating loss

Other expenses (income):

Interest expense, including amortization of debt discount

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

Loss on debt extinguishment

Gain on change in fair value of contingent consideration

Gain on settlement of contingent consideration

Other expense (income)

1 unchanged sentence

Net income (loss) before income taxes

Benefit (provision) for income taxes

Provision for income taxes

Net income (loss)

7 unchanged sentences

(in thousands)

Nine Months Ended

September 30,

Three Months Ended

Operating Activities:

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

Net income (loss)

Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities

Depreciation and amortization

2 unchanged sentences

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

Gain on settlement of contingent consideration

Gain on change in fair value of contingent consideration

Deferred income taxes

6 unchanged sentences

Customer deposits

Net cash provided by operating activities

Net cash (used in) provided by operating activities

Investing activities

3 unchanged sentences

Financing activities

Proceeds from sale of common stock, net of offering expenses

Proceeds from borrowings under revolving credit facility

Repayment of borrowings under revolving credit facility

Payment of deferred financing costs

Settlement of contingent consideration

Repayment of term debt

Principal payments on finance leases

Net cash used in financing activities

Net cash provided by (used in) financing activities

Increase (decrease) in cash and cash equivalents

5 unchanged sentences

(in thousands, except shares)

Three Months Ended September 30, 2024

Balance as of June 30, 2024

Stock-based compensation

Balance as of September 30, 2024

Nine Months Ended September 30, 2024

Three Months Ended March 31, 2025

Balance as of December 31, 2024

Stock-based compensation

Shares issued to employees pursuant to the Retention Bonus Plan

Balance as of September 30, 2024

Three Months Ended September 30, 2023

Balance as of June 30, 2023

Stock-based compensation

Issuance of common stock, net

Balance as of September 30, 2023

Nine Months Ended September 30, 2023

Issuance of warrants

Balance as of March 31, 2025

Three Months Ended March 31, 2024

Balance as of December 31, 2023

Stock-based compensation

Shares issued to directors as compensation

Shares issued to vendors as compensation

Shares issued to employees pursuant to the Retention Bonus Plan

Issuance of common stock, net

Balance as of September 30, 2023

Balance as of March 31, 2024

See accompanying notes to condensed consolidated financial statements.

18 unchanged sentences

Liquidity and Financial Condition;

Going Concern

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

2014 - 15, Disclosure of Uncertainties about an Entity ’ s Ability to Continue as a Going Concern (Subtopic 205 - 40 ) ( “ ASU 205 - 40 ” ) , the Company has evaluated whether there are certain conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the Condensed Consolidated Financial Statements are issued.

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

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 obligation.

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.

As of March 31, 2025, the Company has an accumulated deficit of $ 53,486 and positive working capital of $ 3,133 .

For the three months ended March 31, 2025, the Company generated an operating loss of $ 722 and negative net cash flows from operations of $ 2,449 .

During the three months ended March 31, 2025, the Company settled its contingent consideration liability.

The Company remains dependent on improving cash flows from operations, securing additional sources of liquidity, or both, to fund ongoing operations to meet its financial obligations, including its debt obligations under its current Credit Agreement.

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.

However, these plans have not been finalized, are subject to market conditions, and in some respects are not within the Company’s control.

Therefore, they cannot be deemed probable within one year after the date that the Condensed Consolidated Financial Statements are issued.

As a result of the matters discussed above, including our losses, current liquidity level and projected capital needs, the Company has concluded that management's plans do not alleviate substantial doubt about the Company's ability to continue as a going concern over the next twelve months from the date the Condensed Consolidated Financial Statements are issued.

The Condensed Consolidated Financial Statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or the amounts and classification of liabilities that might result from the outcome of this uncertainty.

3 unchanged sentences

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

These unaudited Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements of the Company and related footnotes for the year ended December 31, 2023, included in the Company’s Annual Report on Form 10 -K filed with the Securities and Exchange Commission on March 21, 2024, as amended on April 26, 2024.

These unaudited Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements of the Company and related footnotes for the year ended December 31, 2024, included in the Company’s Annual Report on Form 10 -K filed with the Securities and Exchange Commission on March 14, 2025.

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

9 unchanged sentences

ASU 2023 - 07 is effective for fiscal years beginning after December 15, 2023, and for interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted.

The Company is currently evaluating the impact of adopting ASU 2023 - 07.

The Company adopted the new standard for the fiscal year ending December 31, 2024.

See Note 13 Segment Reporting for new required disclosures.

In December 2023, the FASB issued ASU 2023 - 09, Income Taxes (Topic 740 ):

2 unchanged sentences

The Company is currently evaluating the impact of adopting ASU 2023 - 09.

Cash and cash equivalents

Cash and cash equivalents consist of cash on deposit in financial institutions, in both the United States and Canada.

The Company does not hold any investments that qualify as cash equivalents as of March 31, 2025.

As of March 31, 2025, the Company had approximately $ 908 in cash that was held in a Canadian financial institution.

The Company does not believe the balance presents a material concentration of credit risk, as the cash is held with a reputable financial institution.

Revenue Recognition

23 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 nine months ended September 30, 2024 and 2023:

September 30,

The Company had the following activity for its allowance for credit losses for the three months ended March 31, 2025 and 2024:

Balance as of beginning of period

Amounts accrued

Write-offs charged against the allowance

( 1 ) ( 228 )

Balance as of end of period

$ 886 $ 1,074

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

15 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 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.

Shares reserved for outstanding stock options, including stock options with performance restricted vesting, and warrants totaling 6,913,928 and 6,222,800 at March 31, 2025 and 2024 , respectively were excluded from the computation of earning (loss) per share as the strike price on the options and warrants were higher than the Company’s market price and therefore anti-dilutive.

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

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 September 30, 2024 and December 31, 2023.

We had no uncertain tax positions as of March 31, 2025 and December 31, 2024.

Goodwill and Intangible Assets

6 unchanged sentences

Our significant estimates include:

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.

contingent purchase consideration valuation, allowance for credit losses, valuation allowances related to deferred taxes, and assumptions and estimates used to evaluate the recoverability of goodwill and other intangible assets and the related amortization methods and periods.

Actual results could differ from those estimates.

Contingent Consideration

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

FAIR VALUE MEASUREMENT

8 unchanged sentences

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

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

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

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

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

1 unchanged sentence

The Company applies ASC 606 for revenue recognition.

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,

The following table disaggregates the Company’s revenue by major source for the three months ended March 31, 2025 and 2024 :

(in thousands)

$ 3,394 $ 4,144

Managed Services

3 unchanged sentences

Total Hardware and Services

$ 9,734 $ 12,285

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.

5 unchanged sentences

These services often include software updates which provide customers with rights to unspecified software product upgrades and maintenance releases and patches released during the term of the support period.

Contracts for these services are generally 12 - 36 months in length.

Contracts for these services are generally 12 - 36 months in length and typically have perpetual autorenewal terms.

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

34 unchanged sentences

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

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

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

Business Combinations

Merger-related Contingent Consideration Settlement

On November 12, 2021, the Company entered into an Agreement and Plan of Merger with Reflect and RSI Exit Corporation, as representative of the former stockholders of Reflect (the “Stockholders’ Representative”), which was amended on February 8, 2022, February 11, 2023, February 17, 2025, and February 23, 2025 ( as amended, the “Merger Agreement”).

Pursuant to the Merger Agreement, the Company’s direct, wholly owned subsidiary, CRI Acquisition Corporation, merged with and into Reflect, with Reflect continuing as the surviving entity and becoming a wholly owned subsidiary of the Company (the “Merger”).

The Merger was closed on February 17, 2022.

The Merger Agreement required the Company to pay to the former Reflect stockholders on or after February 17, 2025 ( the “Guaranteed Date”) additional contingent supplemental cash payments (the “Guaranteed Consideration”) if the average closing price of the Company’s common stock in the fifteen ( 15 ) trading day period prior to the Guaranteed Date was below $ 6.40 per share (such applicable amount, the “Guaranteed Price”).

On March 14, 2025, the Company and Reflect entered into a Settlement Agreement and Fifth Amendment to Merger Agreement with the Stockholder’s Representative (the “Settlement Agreement”), pursuant to which the Company settled and resolved a dispute regarding the amount and enforceability of the Guaranteed Consideration.

Pursuant to the Settlement Agreement, the Company’s obligation to pay the Guaranteed Consideration to the former Reflect stockholders was terminated and released.

In consideration for such termination and release, (i) the Company deposited an aggregate of $ 3,000 in cash with an exchange agent for the ratable benefit of, and for distribution to, the former Reflect stockholders, (ii) the Company and Reflect (as co-obligors) delivered a subordinated promissory note in the principal amount of $ 4,000 payable to the order of the Stockholders’ Representative, as nominee for, and for the ratable benefit of, the former Reflect stockholders (the “Promissory Note”), and (iii) the Company agreed to issue to the former Reflect stockholders warrants to purchase their pro rata share of an aggregate of 777,800 shares of the Company’s common stock (the “Settlement Warrants”).

As a result of the Settlement Agreement, the Company derecognized the previously recorded contingent consideration liability related to the Merger of $ 12,815 and recorded the fair value of the settlement consideration of $ 8,040 , which included $ 3,000 in cash, the $ 4,000 Promissory Note, and Settlement Warrants with a fair value of $ 1,040 .

The Company recognized a gain on settlement of $ 4,775 during the three months ended March 31, 2025 in the Condensed Consolidated Statement of Operations.

In conjunction with entering into the Settlement Agreement and related documents, the Company entered into a Consent Agreement dated March 14, 2025 with First Merchants Bank, among others (the “Consent Agreement”), pursuant to which (among other things) First Merchants Bank, the senior secured lender under the Company’s credit facility, agreed to waive certain negative covenants under the Company’s credit facility that may have otherwise been implicated by the transactions contemplated by the Settlement Agreement.

See Note 8 Debt and Note 11 Warrants for additional accounting considerations as a result of the issuance of the Promissory Note and Settlement Warrants.

SUPPLEMENTAL CASH FLOW STATEMENT INFORMATION

Nine Months Ended

September 30,

Supplemental non-cash investing activities

Three Months Ended

Supplemental non-cash investing and financing activities

Capitalized software in accounts payable

1 unchanged sentence

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

Capitalized deferred financing costs in accounts payable

Issuance of term note as partial settlement of contingent consideration

Issuance of warrants as partial settlement of contingent consideration

Supplemental disclosure information for cash flow

4 unchanged sentences

Intangible Assets

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

September 30,

Intangible assets consisted of the following at March 31, 2025 and December 31, 2024:

Technology platform

Purchased and developed software

Internally developed software platform

Customer relationships

2 unchanged sentences

Net book value of amortizable intangible assets

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.

For the three months ended March 31, 2025 and 2024 , amortization of intangible assets charged to operations was $ 1,136 and $ 790 , respectively.

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

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

The assessment may be performed quantitatively or qualitatively.

1 unchanged sentence

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.

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, 2024 and 2023.

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.

The valuation of goodwill and intangible assets is subject to a high degree of judgment, uncertainty and complexity.

Should any indicators of impairment occur in subsequent periods, the Company will be required to perform an analysis in order to determine whether goodwill is impaired.

During the three months ended March 31, 2025, the Company identified a triggering event during the quarter due to a sustained decline in the Company’s stock price and resulting market capitalization falling below the carrying value of its reporting unit.

As a result, the Company performed a quantitative goodwill impairment test as of March 31, 2025.

The fair value of the reporting unit was estimated using a combination of the market approach and income approach (discounted cash flow method).

The market approach considered valuation multiples of comparable public companies and recent industry acquisition activity.

The income approach involved discounted projected cash flows based on management’s expectations of future performance, including historical trends, recent revenue growth, backlog, and customer acquisition activity.

The valuation reflected assumptions regarding future operating results, terminal growth, and a discount rate reflecting the Company’s weighted-average cost of capital and risk profile.

Based on this analysis, the Company concluded that the fair value of the reporting unit exceeded its carrying amount, and therefore, no goodwill impairment charge was recorded in the Condensed Consolidated Statement of Operations for the three months ended March 31, 2025.

While no impairment was identified, the excess of the fair value over the carrying amount of the subject assets was not significant.

Accordingly, changes in key assumptions, such as reductions in the Company’s projected 2025 operating results or further declines in its market capitalization, could result in a material impairment charge in a future period.

The Company will continue to monitor actual performance relative to expectations and evaluate for potential impairment indicators in future periods.

The valuation of goodwill involves significant judgment and estimation uncertainty, and future events could result in an impairment charge.

A determination that there exists no impairment of goodwill in the current quarter does not mean and should not be interpreted as though there will not exist any impairment of goodwill in future quarters.

Debt for the Company consists of the following:

September 30,

Debt Instrument

3 unchanged sentences

Revolving Credit Facility

Acquisition Term Loan

Consolidation Term Loan

Promissory Note

Total debt, gross

3 unchanged sentences

Total long-term debt, net

Revolving Credit Facility

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

4 unchanged sentences

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.

Effective March 31, 2025, the Company entered into an amendment to the Credit Agreement, modifying the financial covenant related to the Senior Funded to EBITDA ratio.

Pursuant to the amendment, the Company is required to maintain a Senior Funded Debt to EBITDA ratio of less than 4 to 1 through June 30, 2025, and less than 3.75 to 1 beginning with the quarter ending September 30, 2025 and thereafter.

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.

5 unchanged sentences

≥ 3.00 to 1.00

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

The effective interest rate at March 31, 2025 was 7.43 %.

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

1 unchanged sentence

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 September 30, 2024, the Company was in compliance with all applicable debt covenants.

The Company had $ 19,238 in outstanding borrowings under the revolving credit facility as of March 31, 2025.

Total availability under the revolving facility was $ 2,862 .

As of March 31, 2025, the Company was in compliance with all applicable debt covenants.

Promissory Note

The Promissory Note was issued on March 14, 2025 as part of the Settlement Agreement to resolve the contingent consideration liability.

It is an unsecured obligation of the Company.

The Promissory Note bears interest at a fixed annual rate of 14.0 %.

In the event of a default (as defined in the Promissory Note), or during any period of non-payment caused by restrictions under the Subordination Agreement (as defined below), the interest rate increases to 17.0 % per annum (the “Interest Rate”).

The Promissory Note requires monthly payments of interest only commencing April 14, 2025 and continuing through September 14, 2025.

Commencing October 14, 2025, the Company is required to pay principal and interest in accordance with an amortization schedule that requires equal monthly payments of $ 109 on the 14th day of each calendar month through maturity on September 14, 2027.

On the maturity date, the Company is required to make a final balloon payment of $ 2,277 , representing the remaining principal and accrued but unpaid interest outstanding at maturity.

The principal balance of the Promissory Note (together with accrued but unpaid interest on such amounts) may be prepaid in whole or in part at any time prior to maturity, subject to the Company’s payment of a make-whole payment with such prepayment.

The make-whole payment is equal to the aggregate monthly payments of interest on the prepayment amount that would be due after the prepayment date and through the maturity date, using the percentage, if any, by which the Interest Rate exceeds a prescribed “yield maintenance treasury rate.”

The Stockholders’ Representative’s rights under the Promissory Note are subject to a Subordination Agreement dated of March 14, 2025 by and among the Company, Reflect, First Merchants Bank and the Stockholders’ Representative (the “Subordination Agreement”).

Under the terms of the Subordination Agreement, during any period in which an event of default exists under the senior debt facilities, the Company is prohibited from making any payments on the Promissory Note unless First Merchants Bank provides prior written consent, and the Stockholders' Representative is prohibited from accepting or enforcing any payments during the subordination period.

The Promissory Note includes a default interest provision that increases the stated interest rate to 17 % in the event of nonpayment or other specified defaults.

COMMITMENTS AND CONTINGENCIES

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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 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.

For the three months ended March 31, 2025 and 2024, we reported tax expense of $ 99 and $ 9 , respectively.

At March 31, 2025 , the net deferred tax liabilities were $ 172 after valuation allowance, compared to net tax liabilities of $ 133 at December 31, 2024.

The Company had outstanding warrants accounted for as equity instruments in the Company’s Condensed Consolidated Financial Statements totaling 5,364,802 and 4,587,002 at March 31, 2025 and December 31, 2024, respectively.

The weighted average exercise price of the outstanding warrants was $ 4.66 and $ 4.90 at March 31, 2025 and December 31, 2024, respectively.

The weighted average remaining contractual life of the outstanding warrants was 3.31 and 3.11 years at March 31, 2025 and December 31, 2024, respectively.

On March 14, 2025, the Company issued to the former Reflect stockholders the Settlement Warrants to purchase their pro rata share of an aggregate of 777,800 shares of the Company’s common stock at an exercise price equal to $ 3.25 per share, subject to adjustment for stock dividends, distributions, subdivisions, combinations, or reclassifications.

The Settlement Warrants are exercisable immediately and expire six years from the date of issuance.

They may be exercised for cash or, at the holder’s election, on a cashless (net settlement) basis.

The Company evaluated the Settlement Warrants under ASC 815 - 40, Derivatives and Hedging - Contracts in Entity ’ s Own Equity , and concluded that the Settlement Warrants meet the criteria for equity classification.

As such, the Settlement Warrants are not subject to remeasurement.

Accordingly, the fair value of the Settlement Warrants at issuance was recorded as a component of additional paid-in capital within shareholders’ equity.

The fair value of the Settlement Warrants was estimated at $ 1.34 per share as of the issuance date, using the Black-Scholes option pricing model.

Key assumptions included:

expected volatility of 94 %, expected term of 6 years (matching the exercise term), risk-free interest rate of 4.15 %, dividend yield of 0 %, and the Company’s stock price of $ 1.88 as of the valuation date.

STOCK-BASED COMPENSATION

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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

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Balance, December 31, 2024

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

Forfeited or expired

- - ( 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 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 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

Balance, March 31, 2025

The weighted average remaining contractual life for options exercisable is 4.98 years as of March 31, 2025 .

Stock-based compensation expense recognized for the issuance of stock options for the three months ended March 31, 2025 and 2024, of $ 2 and $ 3 , respectively, was included in general and administrative expense in the Condensed Consolidated Financial Statements.

At March 31, 2025 , there was no unrecognized compensation expense related to unvested share-based awards for employees.

On April 1, 2025, the Company granted stock options to purchase an aggregate of 567,500 shares of common stock to employees pursuant to the Company’s 2023 Stock Incentive Plan (the “Plan”), which was previously approved by shareholders.

The options have an exercise price of $ 1.95 per share, equal to the closing market price of the Company’s common stock on the grant date.

The options vest in equal annual installments over a three -year period, subject to continued service through each vesting date, and expire ten years from the date of grant.

The Company will determine the grant-date fair value using the Black-Scholes option pricing model with assumptions including expected volatility, term, risk-free interest rate, and dividend yield.

The awards will be recognized as stock-based compensation expense over the requisite service period in accordance with ASC 718 Compensation - Stock Compensation , based on the grant-date fair value of the options.

SEGMENT REPORTING

Segment Information

We currently operate in one reportable segment, marketing technology solutions.

The marketing technology solutions segment generates revenue through three primary sources which includes ( 1 ) hardware sales from reselling digital signage hardware from original equipment manufacturers, ( 2 ) services from helping customers design, deploy, and manage their digital signage and ad-based networks, and ( 3 ) recurring subscription licensing and support revenue from our digital signage and ad-tech software platforms, which are generally sold via a SaaS model.

Our Chief Executive Officer is our chief operating decision maker (the “CODM”).

Our CODM evaluates performance and makes operating decisions about allocating resources based on financial data presented on a consolidated basis, accompanied by information about revenue disaggregated by service.

Our CODM uses the segment information primarily to evaluate the profitability and strategic growth potential of the segment.

The reported measures of profit or loss are benchmarked against historical performance and market expectations.

Based on this analysis, the CODM determines whether or not to invest in new technology or reallocate operating expenses - namely personnel.

In addition, the CODM reviews supplementary metrics such as disaggregated revenue as disclosed in Note 4 Revenue Recognition and customer growth to ensure that our strategic decisions are aligned with long-term performance goals.

The measure used by our CODM to assess performance and make operating decisions is net income (loss) as reported on our Condensed Consolidated Statements of Operations.

Significant segment expenses are reported as total expenses on the Condensed Consolidated Statements of Operations.

Segment assets are disclosed in the Condensed Consolidated Balance Sheets.

Significant Customers

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 .

We had two customers that accounted for 13 % and 11 % of accounts receivable at March 31, 2025 and one customer that accounted for 16 % of accounts receivable at December 31, 2024.

We had three customers that accounted for 20 %, 11 % and 10 % of revenue for the three months ended March 31, 2025 , compared to four customers that accounted for 13 %, 12 %, 11 %, and 10 % of revenue for the three months ended March 31, 2024 .

Significant Vendors

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.

We had two vendors that accounted for 14 % and 13 % of outstanding accounts payable at March 31, 2025 , and two vendors that accounted for 27 % and 10 % of outstanding accounts payable at December 31, 2024.

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

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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 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.

Factors that could cause actual results to differ materially from those anticipated are set forth under the caption “Risk Factors” in this Quarterly Report on Form 10-Q, and the Company’s Annual Report on Form 10-K for the year ended December 31, 2024, as filed with the Securities and Exchange Commission on March 14, 2025.

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

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We caution you to keep in mind the cautions and risks described in this document and to refrain from attributing undue certainty to any forward-looking statements, which speak only as of the date of the document in which they appear.

We do not undertake to update any forward-looking statement.

Except to the extent required by law, we expressly disclaim any obligation to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in our expectations with regard thereto or change in events, conditions, or circumstances on which any statement is based.

The Company transforms environments through digital solutions by providing innovative digital signage solutions for key market segments and use cases, including:

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This also provides us purchasing power to source products and services for our customers, enabling us to deliver cost effective, reliable and powerful solutions to small and medium size business customers.

Ad management platform – Our customers are increasingly interested in monetizing their digital signage networks through advertising content.

However, efficiently scheduling advertising content into digital signage playlists to meet campaign objectives can be a challenging and labor-intensive process for our customers.

AdLogic, our home-grown, content management-agnostic platform, automates this process, allowing network owners to capture more revenue with less expense.

Media sales – Few digital signage solution providers offer their customers media sales as a service.

We have in-house media sales expertise to elevate conversations with our customers interested in better understanding network monetization.

We believe this meaningful differentiation in the sales process provides us an additional revenue stream compared to our competitors.

AdTech platforms – The Company has developed and deployed the AdLogic and Adlogic CPM+ platforms, which, working in conjunction with our CMS platforms, present completely integrated digital advertising solutions for existing and prospective customers seeking to monetize their in-store retail media networks.

These platforms anchor the Company’s vertical expansion into AdTech bringing new, and expanding existing, addressable markets.

Market sector expertise – Creative Realities has in-house experts in key market segments such as automotive, retail, QSRs, convenience stores, and DOOH advertising.

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

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

Three Months Ended March 31, 2025 Compared to Three Months Ended March 31, 2024

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 September 30,

ended March 31,

Cost of sales

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Total operating expenses

Operating income

Operating loss

Other expenses (income):

Interest expense, including amortization of debt discount

Change in fair value of contingent consideration

Gain on settlement of contingent consideration

Gain on change in fair value of contingent consideration

Other expense (income)

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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 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 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 $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 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 Nine Months

Ended September 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 $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 remained consistent at 48% for the nine months ending September 30, 2024 and 2023.

Sales decreased $2,551, or 21%, for the three months ending March 31, 2025 as compared to the same period in 2024.

Hardware revenues were $3,394, a decrease of $750, or 18%, for the three months ending March 31, 2025 as compared to the same period in 2024.

Delays and deferrals in existing and prospective customer deployment planning leading up to and immediately following the US presidential election negatively impacted the timing of hardware sales and associated installation activities.

Services and other revenues were $6,340, a decrease of $1,801 or 22%.

Installation services revenue decreased $565, or 26% for the three months ending March 31, 2025 as compared to the same period in 2024, due to aforementioned customer delays.

Managed services revenue, which includes the Company’s SaaS subscription services, were $4,247, a decrease of $527, or 11%, as compared to the same period in 2024, as a result of reductions in the quantity of licenses subject to software subscriptions on our platforms driven by a single customer which insourced a portion of their hosted environment.

Other services revenue decreased $709, or 59% for the three months ending March 31, 2025 as compared to the same period in 2024, as a result of the Company exiting media sales effective October 1, 2024.

Gross profit margin was 46% and 47% for the three months ending March 31, 2025 and 2024, respectively.

Hardware gross margin increased 9%, as a result of deployments utilizing hardware with more favorable margins due to the Company’s purchasing power, combined with increased pricing on certain hardware-only purchases by customers.

Services and other gross margin decreased 6% as a result of a reduction in our SaaS subscription services and our exit from media sales effective October 1, 2024.

Sales and Marketing Expenses

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.

Sales and marketing expenses decreased by $218, or 15%, for the three-month period ended March 31, 2025 as compared to the same period in 2024, driven primarily by decreases of (1) $97 in fixed and variable salaries, taxes and benefits of our sales and marketing personnel, and (2) $90 in trade show and marketing activities.

General and Administrative Expenses

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.

General and administrative expenses decreased by $447 or 10%, for the three months ending March 31, 2025 as compared to the same period in 2024.

The decrease was primarily driven by (1) a $185 reduction in payroll-related expenses due to reduced average headcount in the current period, and (2) a $166 reduction in facilities expenses following relocation of the Company’s Dallas, Texas office, which became effective April 1, 2024.

Interest Expense

See Note 8 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.

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 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.

Gain on Settlement of Contingent Consideration

See Note 5 Business Combinations to the Condensed Consolidated Financial Statements for a discussion of the Company’s gain on settlement of contingent consideration.

Other expenses (income)

The Company recognized $265 in other expenses for the three months ended March 31, 2025, consisting primarily of (1) $120 in legal expenses incurred in connection with the contingent consideration settlement and (2) $136 in severance-related expenses in connection with the termination of certain employees as part of a cost-reduction initiative.

Summary Unaudited Quarterly Financial Information (Non-GAAP)

A non-GAAP financial measure is generally defined as one that purports to measure historical or future financial performance, financial position, or cash flows, but excludes or includes amounts that would not be so excluded or included in the most comparable U.S.

generally accepted accounting principles (“GAAP”) measure.

Earnings before interest, depreciation, and amortization (“EBITDA”) and adjusted EBITDA (“Adjusted EBITDA”) are non-GAAP financial performance measures we believe offer a useful view of the overall operations of our business.

These non-GAAP financial performance measures, which may not be comparable to, and may be defined differently than, similarly titled measures used or reported by other companies, should not be considered in isolation from or as a substitute for the related GAAP measures and should be read together with financial information presented on a GAAP basis.

EBITDA and Adjusted EBITDA are not measurements of financial performance under GAAP.

We use non-GAAP financial performance measures to supplement our GAAP results in order to provide a more complete understanding of the factors and trends affecting our business.

We believe these non-GAAP financial performance measures are helpful in identifying trends in our day-to-day performance because the items excluded have little or no significance on our day-to-day operations.

These measures provide an assessment of core expenses and afford management the ability to make decisions which are expected to facilitate meeting current financial goals as well as achieve optimal financial performance.

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

EBITDA and Adjusted EBITDA have limitations as analytical tools.

They should not be viewed in isolation or as a substitute for net income (loss) or any other measure of performance derived in accordance with GAAP.

EBITDA and Adjusted EBITDA exclude certain expenses that we believe may not be indicative of our business operating results.

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.

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

In addition, Adjusted EBITDA excludes stock-based compensation, fair value adjustments and both cash and non-cash non-recurring gains and charges.

We strongly urge you to review the following reconciliation of net (loss) income to EBITDA and Adjusted EBITDA, along with our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

We also strongly urge you not to rely on any single financial performance measure to evaluate our business.

The table below shows the reconciliation of the Company’s net (loss) income to EBITDA and Adjusted EBITDA:

Quarters Ended

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Loss (Gain) on fair value of contingent consideration

Gain on settlement of contingent consideration

Loss on debt extinguishment

Stock-based compensation – Director grants

Other (income) expense

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Liquidity and Capital Resources

See Note 1 Nature of Organization and Operations to the accompanying Condensed Consolidated Financial Statements for a discussion of liquidity and financial resources.

As of March 31, 2025, we had an accumulated deficit of $53,486 and positive working capital of $3,133.

For the three months ended March 31, 2025, we generated an operating loss of $722 and negative net cash flows from operations of $2,449.

We remain dependent on improving cash flows from operations, securing additional sources of liquidity, or both, to fund ongoing operations to meet our financial obligations, including our debt obligations under our current Credit Agreement.

Going Concern

In response to our accumulated deficit and capital requirements, we continue to evaluate our available options for amending our debt facilities or accessing the capital markets via equity financing.

However, these plans have not been finalized, are subject to market conditions, and in some respects are outside of our control.

Therefore, they cannot be deemed probable as of March 31, 2025.

As a result of the matters discussed above, including our losses, current liquidity level and projected capital needs, we have concluded that management’s plans do not alleviate substantial doubt about our ability to continue as a going concern within one year after the issuance date of the Condensed Consolidated Financial Statements included in this Report.

To the extent revenues from operations are insufficient to meet our liquidity requirements, our ability to continue as a going concern will depend our ability to effectively raise capital through private or public placement of our equity securities.

If we are unable to maintain sufficient financial resources, our business, financial condition and results of operations, as well as our ability to continue to execute on our business plan, and satisfy our obligations as they become due, will be materially and adversely affected.

Failure to obtain additional financing will have a material, adverse impact on our business operations.

There can be no assurance that we will be able to obtain the financing needed to achieve our goals on acceptable terms or at all.

Additionally, any equity or equity-linked financings would likely have a dilutive effect on the holdings of our existing stockholders.

Our current level of cash and cash equivalents are not sufficient to execute our business plan.

For the foreseeable future, we will incur significant operating expenses, capital expenditures and working capital funding that will deplete our cash on hand.

Our ability to obtain additional financing is extremely limited under current market conditions, including the significant amount of capital required, the market price of our stock and potential dilution from the issuance of any additional securities.

If we are unable to identify other sources of funding, we may need to further adjust our operations.

As a result of all of the matters discussed above, including our losses, current liquidity level and our projected capital needs, substantial doubt exists about our ability to continue as a going concern over the next twelve months from the date of issuance of the accompanying Condensed Consolidated Financial Statements.

Summary of Cash Flows

Operating Activities

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.

The net cash used in operating activities during the three months ended March 31, 2025 was $2,449, compared to net cash provided by operating activities of $1,938 for the same period in 2024.

During the three month period ending March 31, 2025, the Company generated net income of $3,368, which included a $4,775 gain on settlement of contingent liability, and depreciation and amortization expense of $1,187.

The Company used $2,314 in cash due to changes in operating assets and liabilities, primarily due to decreases in accounts payable and accrued expenses.

Investing Activities

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.

Net cash used in investing activities during the three months ended March 31, 2025 was $621, compared to $830 during the same period in 2024.

We currently do not have any material commitments for capital expenditures as of March 31, 2025.

Financing Activities

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.

Net cash provided by financing activities during the three months ended March 31, 2025 was $3,182, compared to net cash used in financing activities of $1,119 for the same period in 2024.

Net cash provided by financing activities during the three month period ended March 31, 2025 is primarily the result of net proceeds of $6,194 from borrowings and payments under the Company’s revolving credit facility, partially offset by $3,000 in cash payments made to former Reflect stockholders pursuant to the Settlement Agreement.

Revolving Credit Facility

On May 23, 2024, we entered into a Credit Agreement (the “Credit Agreement”) with First Merchants Bank (the “Bank”).

The Credit Agreement provides us 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 Credit Agreement matures in May 2027 and requires us to pay the entire unpaid principal balance upon maturity.

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 our Senior Funded Debt to EBITDA Ratio.

The effective interest rate at March 31, 2025 was 7.43%.

We pay accrued interest monthly on the first day of each successive calendar month.

We had $19,238 in outstanding borrowings under the revolving credit facility as of March 31, 2025.

Total availability under the revolving facility was $2,862.

Promissory Note

The Promissory Note was issued on March 14, 2025 in the original principal amount of $4,000 as part of the Settlement Agreement to resolve the contingent consideration liability.

It is our unsecured obligation.

The Promissory Note bears interest at a fixed annual rate of 14.0%.

Upon the occurrence of and during an event of a default (as defined in the Promissory Note), or during any period of non-payment caused by restrictions under the Subordination Agreement, the interest rate increases to 17.0% per annum.

The Promissory Note requires monthly payments of interest only commencing April 14, 2025 and continuing through September 14, 2025.

Commencing October 14, 2025, we are required to pay principal and interest in accordance with an amortization schedule that requires equal monthly payments of $109 on the 14th day of each calendar month through maturity on September 14, 2027.

On the maturity date, we are required to make a final balloon payment of $2,277, representing the remaining principal and accrued but unpaid interest outstanding at maturity.

The principal balance of the Promissory Note (together with accrued but unpaid interest on such amounts) may be prepaid in whole or in part at any time prior to maturity, subject to our payment of a make-whole payment with such prepayment.

The make-whole payment is equal to the aggregate monthly payments of interest on the prepayment amount that would be due after the prepayment date and through the maturity date, using the percentage, if any, by which the applicable interest rate exceeds a prescribed “yield maintenance treasury rate.”

We had outstanding warrants accounted for as equity instruments in our Condensed Consolidated Financial Statements totaling 5,364,802 and 4,587,002 at March 31, 2025 and December 31, 2024, respectively.

The weighted average exercise price of the outstanding warrants was $4.66 and $4.90 at March 31, 2025 and December 31, 2024, respectively.

The weighted average remaining contractual life of the outstanding warrants was 3.31 and 3.11 years at March 31, 2025 and December 31, 2024, respectively.

On March 14, 2025, we issued to the former Reflect stockholders the Settlement Warrants to purchase their pro rata share of an aggregate of 777,800 shares of our common stock at an exercise price equal to $3.25 per share, subject to adjustment for stock dividends, distributions, subdivisions, combinations, or reclassifications.

The Settlement Warrants are exercisable immediately and expire six years from the date of issuance.

They may be exercised for cash or, at the holder’s election, on a cashless (net settlement) basis.

The fair value of the Settlement Warrants was estimated at $1.34 per share as of the issuance date, using the Black-Scholes option pricing model.

Key assumptions included:

expected volatility of 94%, expected term of 6 years (matching the exercise term), risk-free interest rate of 4.15%, dividend yield of 0%, and our stock price of $1.88 as of the valuation date.

Off-Balance Sheet Arrangements

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.

During the three months ended March 31, 2025, we did not engage in any off-balance sheet arrangements set forth in Item 303(a)(4) of Regulation S-K.

Quantitative and Qualitative Disclosures about Market Risk

Not applicable.

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