CREATIVE REALITIES INC

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except per share amounts)

See accompanying notes to condensed consolidated financial statements

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’** EQUITY**

(in thousands, except shares)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except shares and per share amounts)

(unaudited)

NOTE1: NATURE OF ORGANIZATION AND OPERATIONS

Unless the context otherwise indicates, references in these Notes to the accompanying Condensed Consolidated Financial Statements to“we,”* “us,” “our,”and“the Company” refer to Creative Realities, Inc. and its subsidiaries.*

Nature of the Company’s Business

Creative Realities, Inc. is a Minnesota corporation that provides innovative digital marketing technology and solutions to retail companies, individual retail brands, enterprises and organizations throughout the United States and in certain international markets. The Company has expertise in a broad range of existing and emerging digital marketing technologies, as well as the related media management and distribution software platforms and networks, device management, product management, customized software service layers, systems, experiences, workflows, and integrated solutions. Our technology and solutions include digital merchandising systems and omni-channel customer engagement systems, interactive digital shopping assistants, advisors and kiosks, and other interactive marketing technologies such as mobile, social media, point-of-sale transactions, beaconing and web-based media that enable our customers to transform how they engage with consumers. We have expertise in a broad range of existing and emerging digital marketing technologies, as well as the following related aspects of our business: content, network management, and connected device software and firmware platforms; customized software service layers; hardware platforms; digital media workflows; and proprietary processes and automation tools.

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

Reverse stock split

On* March 23, 2023,the Company filed Articles of Amendment with the Secretary of State of the State of Minnesota to effectuate, effective March 27, 2023,a1*-for-3 reverse stock split of the shares of the Company's common stock, par value $0.01 per share. All share and per share information (including share and per share information related to share-based compensation) has been retroactively adjusted to reflect the reverse stock split within this Quarterly Report on Form10-Q (“Report”).

As a result of the reverse stock split, effective12:01 am on* March 27, 2023,everythree* shares of common stock then-issued and outstanding automatically combined intoone share of common stock, withno change in par value per share.No fractional shares were outstanding following the reverse stock split and any fractional shares resulting from the reverse split were rounded up to the nearest whole share of common stock. In connection with the reverse stock split, the total number of shares of common stock authorized for issuance was reduced from 200,000,000 shares to 66,666,666 shares in proportion to the reverse stock split.

Effective as of the same time as the reverse stock split, the number of shares of common stock available for issuance under the Company's equity compensation plans were reduced in proportion to the reverse stock split. The reverse stock split also resulted in reductions in the number of shares of common stock issuable upon exercising or vesting of equity awards in proportion to the reverse stock split and proportionate increases in exercise price or share-based performance criteria, if any, applicable to such awards. Similarly, the number of shares of common stock issuable upon exercise of outstanding warrants were reduced in proportion to the reverse stock split, and the exercise prices of outstanding warrants were proportionately increased.

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Liquidity and Financial Condition

In accordance with Accounting Standards Update (“ASU”)No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (Subtopic205*-40) (“ASU205-40*”), 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 withinone year after the date that the Condensed Consolidated Financial Statements are issued.

At* March 31, 2024*, the Company has an accumulated deficit of $53,455, negative working capital of $22,418, including current debt obligations of $12,770, and cash of $2,899. For thethree months ended* March 31, 2024*, the Company incurred an operating loss of $76 and generated positive net cash flows from operations of $1,938. Pursuant to the Second Amended and Restated Credit and Security Agreement (the "Credit Agreement") between the Company and Slipstream Communications, LLC ("Slipstream"), the Company is required and began to make monthly repayments of principal on the Consolidation Term Loan on* September 1, 2023.The monthly principal payment is approximately $370 and will continue on thefirst* day of each month thereafter until the Maturity Date on* February 17, 2025,with total principal repayments of $3,593 during thetwelve* months subsequent to the reporting date of these Condensed Consolidated Financial Statements. In addition, the Company is required to repay the principal balance on the Acquisition Term Loan of $10,000 at maturity and resolve the contingent consideration, currently estimated for accounting purposes at $10,603, each of which mature on* February 17, 2025.The Company doesnot* have sufficient cash on hand or liquidity to make these principal repayments. The conditions and events raise substantial doubt about the Company's ability to continue as a going concern under the technical framework within ASU205-40.

In response to these conditions, the Company plans to evaluate its available options for refinancing, via recapitalization, debt financing or equity financing, its upcoming obligations associated with the Acquisition Term Loan, Consolidation Term Loan, and contingent consideration. However, these plans havenot been finalized, are subject to market conditions, and arenot within the Company’s control, and therefore cannot be deemed probable. As a result, the Company has concluded that management's plans donot alleviate substantial doubt about the Company's ability to continue as a going concern.

The Condensed Consolidated Financial Statements donot 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.

NOTE2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A summary of the significant accounting policies consistently applied in the preparation of the accompanying Condensed Consolidated Financial Statements follows:

1. Basis of Presentation

The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with the instructions to Form10-Q and Article10 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 Form10-K filed with the Securities and Exchange Commission on* March 21, 2024,as amended on April 26, 2024.*

The Condensed Consolidated Financial Statements include the accounts of Creative Realities, Inc. and our wholly owned subsidiaries Allure, CRI Canada, and Reflect. All intercompany balances and transactions have been eliminated in consolidation, as applicable.

The results of operations for the interim periods arenot necessarily indicative of results of operations for a full year. Management believes the accompanying unaudited Condensed Consolidated Financial Statements reflect all adjustments, including normal recurring items, considered necessary for a fair statement of results for the interim periods presented.

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2. Recently Issued Accounting PronouncementsNot Yet Adopted

In* November 2023,the Financial Accounting Standards Board (“FASB”) issued ASU2023*-07, Segment Reporting (Topic280*): Improvements to Reportable Segment Disclosures*, which requires public entities to disclose information about their reportable segments’ significant expenses and other segment items on an interim and annual basis. Public entities with a single reportable segment are required to apply the disclosure requirements in ASU2023-07, as well as all existing segment disclosures and reconciliation requirements in ASC280 on an interim and annual basis. ASU2023-07 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 ASU2023*-07.

In* December 2023,the FASB issued ASU2023*-09, Income Taxes (Topic740*): Improvements to Income Tax Disclosures*, which requires public entities, on an annual basis, to provide disclosure of specific categories in the rate reconciliation, as well as disclosure of income taxes paid disaggregated by jurisdiction. ASU2023-09 is effective for fiscal years beginning after* December 15, 2024,with early adoption permitted. The Company is currently evaluating the impact of adopting ASU2023*-09.

3. Revenue Recognition

We recognize revenue in accordance with Accounting Standards Codification ("ASC")606, Revenue from Contracts with Customers, applying thefive-step model.

If an arrangement involves multiple performance obligations, the obligations are analyzed to determine the separate units of accounting, whether the obligations have value on a standalone basis and whether there is objective and reliable evidence of their standalone selling price. The total contract transaction price is allocated to the identified performance obligations based upon the relative standalone selling prices of the performance obligations. The standalone selling price is based on an observable price for services sold to other comparable customers, when available, or an estimated selling price using a cost plus margin approach.

The Company estimates the amount of total contract consideration it expects to receive for variable arrangements by determining the most likely amount it expects to earn from the arrangement based on the expected quantities of services it expects to provide and the contractual pricing based on those quantities. The Company only includes some or a portion of variable consideration in the transaction price when it is probable that a significant reversal in the amount of cumulative revenue recognized willnot occur when the uncertainty associated with the variable consideration is subsequently resolved. The Company considers the sensitivity of the estimate, its relationship and experience with the customer and variable services being performed, the range of possible revenue amounts and the magnitude of the variable consideration to the overall arrangement. The Company receives variable consideration in very few instances.

Revenue is recognized when a customer obtains control of promised goods or services under the terms of a contract and is measured as the amount of consideration the Company expects to receive in exchange for transferring goods or providing services. The Company has very few contracts with material extended payment terms as payment is typically due at or shortly after the time of the sale, typically ranging betweenthirty andninety days. In those instances where the Company has material extended payment terms (most commonly in multi-year arrangements where the Company acts as an agent to a transaction on behalf of its customers), the Company evaluates and applies constraints to arrive at the revenue recognized in the period in which a contract is entered. Observable prices are used to determine the standalone selling price of separate performance obligations or a cost plus margin approach whenone isnot available. Sales, value-added and other taxes collected concurrently with revenue producing activities are excluded from revenue.

The Company recognizes contract assets or unbilled receivables related to revenue recognized for services completed butnot yet invoiced to the customers. A contract liability is recognized as deferred revenue when the Company invoices customers in advance of performing the related services under the terms of a contract. Deferred revenue is recognized as revenue when the Company has satisfied the related performance obligation.

The Company uses the practical expedient for recording an immediate expense for incremental costs of obtaining contracts, including certain design/engineering services, commissions, incentives, and payroll taxes, as these incremental and recoverable costs have terms that donot exceedone year.

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4. Allowance for Credit Losses

The allowance for credit losses is the Company's best estimate of the amount of expected lifetime credit losses in the Company's accounts receivable. The Company regularly reviews the adequacy of its allowance for credit losses. The Company estimates losses over the contractual life using assumptions to capture the risk of loss, even if remote, based principally on how long a receivable has been outstanding. Account balances are charged off against the allowance for credit losses after all reasonable means of collection have been exhausted and the potential for recovery is considered remote. Other factors considered include historical write-off experience, current economic conditions, customer credit, and past transaction history with the customer. The allowance for credit losses is included in accounts receivable, net in the accompanying Condensed Consolidated Balance Sheets.

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

5. Inventories

Inventories are stated at the lower of cost or net realizable value, determined by thefirst-in,first-out (FIFO) method, and consist of the following:

6. Impairment of Long-Lived Assets

We review the carrying value of all long-lived assets, including property and equipment, for impairment in accordance with ASC360, Accounting for the Impairment or Disposal of Long-Lived Assets. Under ASC360, impairment losses are recorded whenever events or changes in circumstances indicate the carrying value of an asset* may**not* be recoverable.

If the impairment tests indicate that the carrying value of the asset is greater than the expected undiscounted cash flows to be generated by such asset, an impairment loss would be recognized. The impairment loss is determined as the amount by which the carrying value of such asset exceeds its fair value. We generally measure fair value by considering sale prices for similar assets or by discounting estimated future cash flows from such assets using an appropriate discount rate. Assets to be disposed of are carried at the lower of their carrying value or fair value less costs to sell. Considerable management judgment is necessary to estimate the fair value of assets, and accordingly, actual results could vary significantly from such estimates.

7. Basic and Diluted 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 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 6,222,800 and 7,339,582 at* March 31, 2024* and2023, respectively, were excluded from the computation of loss per share as the strike price on the options and warrants were higher than the Company's market price and therefore anti-dilutive.

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8. Income Taxes

Deferred income taxes are recognized in the financial statements for the tax consequences in future years of differences between the tax basis of assets and liabilities and their financial reporting amounts based on enacted tax laws and statutory tax rates. Temporary differences arise from a number of matters including, butnot limited to, net operating losses, differences in basis of intangibles, stock-based compensation, reserves for uncollectible accounts receivable and inventory, differences in depreciation methods, and accrued expenses. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. The Company accounts for uncertain tax positions utilizing an established recognition threshold and measurement attributes for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. We hadno uncertain tax positions as of* March 31, 2024* and* December 31, 2023*.

9. Goodwill and Intangible Assets

We follow the provisions of ASC350, Goodwill and Other Intangible Assets. Pursuant to ASC350, goodwill acquired in a purchase business combination isnot amortized, but instead tested for impairment at least annually. The Company uses an annual measurement date of* September 30*to assess impairment of goodwill and indefinite-lived intangible assets, or as indicators are identified.

Definite-lived intangible assets are amortized straight-line in accordance with their identified useful lives.

10. Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Our significant estimates include: contingent purchase consideration valuation, allowance for credit losses, valuation allowances related to deferred taxes, the fair value of acquired assets and liabilities, the fair value of liabilities reliant upon the appraised fair value of the Company, valuation of stock-based compensation awards and other assumptions and estimates used to evaluate the recoverability of long-lived assets, goodwill and other intangible assets and the related amortization methods and periods. Actual results could differ from those estimates.

11. 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, 2022and 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's1*-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.

The Company* mayexercise an extension option (the “Extension Option”) to extend the Guarantee Date bysix* (6) months, from* February 17, 2025to 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 Optionno* 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 thefifteen* (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.

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NOTE3: FAIR VALUE MEASUREMENT

We measure certain financial assets, including cash equivalents, at fair value on a recurring basis. In accordance with ASC820-10-30, fair value is a market-based measurement that should be determined based on the assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, ASC820-10-35 establishes athree-level hierarchy that prioritizes the inputs used in measuring fair value. Thethree hierarchy levels are defined as follows:

Level1 — Valuations based on unadjusted quoted prices in active markets for identical assets.

Level2 — Valuations based on observable inputs (other than Level1 prices), such as quoted prices for similar assets at the measurement date; quoted prices in markets that arenot active; or other inputs that are observable, either directly or indirectly.

Level3 — 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 Level3 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 Level3 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 Level3 estimates.

NOTE4: REVENUE RECOGNITION

The Company applies ASC606 for revenue recognition. The following table disaggregates the Company’s revenue by major source for thethree months ended* March 31, 2024and2023*:

Hardware

System hardware revenue is recognized generally upon shipment of the product or customer acceptance depending upon contractual arrangements with the customer in instances in which the sale of hardware is the sole performance obligation. Shipping charges billed to customers are included in hardware sales and the related shipping costs are included in hardware cost of sales. The cost of freight and shipping to the customer is recognized in cost of sales at the time of transfer of control to the customer. System hardware revenues are classified as “Hardware” within our disaggregated revenue.

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Managed Services

Software as a service (“SaaS”) license sales

Software as a service includes revenue from software licensing and delivery in which software is licensed on a subscription basis and is centrally hosted by the Company. These services often include software updates which provide customers with rights to unspecified software product upgrades and maintenance releases and patches released during the term of the support period. Contracts for these services are generally 12-36 months in length. We account for revenue from these services in accordance with ASC985-20-15-5 and recognize revenue ratably over the performance period.

Maintenance and support services

The Company sells support services that include access to technical support personnel for software and hardware troubleshooting. The Company offers a hosting service through our network operations center, or NOC, allowing the ability to monitor and support its customers’ networks7 days a week,24 hours a day. These contracts are generally 12-36 months in length and typically have autorenewal terms. Revenue is recognized over the term of the agreement in proportion to the costs incurred in fulfilling performance obligations under the contract.

Maintenance and support fees are based on the level of service provided to end customers, which can range from monitoring the health of a customer’s network to supporting a sophisticated web-portal to managing the end-to-end hardware and software of a digital marketing system. These agreements are renewable by the customer. Rates for maintenance and support, including subsequent renewal rates, are typically established based upon a fee per location, per device, or a specified percentage of net software license fees as set forth in the arrangement. These contracts are generally12-36 months in length. Revenue is recognized ratably and evenly over the service period.

The Company also performs time and materials-based maintenance and repair work for customers. Revenue is recognized at a point in time when the performance obligation has been fully satisfied.

Installation Services

The Company performs installation services associated with system hardware sales to customers and recognizes revenue upon completion of the installations. Installation services also include engineering and configuration services required to be performed to design and deploy a digital signage system that subsequently becomes an installation project.

When system hardware sales include installation services to be performed by the Company, the goods and services in the contract are, in certain instances,not distinct as the customer contract contemplates an installed solution, inclusive of system hardware. In those instances, the arrangement is accounted for as a single performance obligation. Our customers* may*control the work-in-process and can make changes to the design specifications over the contract term. In these circumstances, revenues are recognized over time as the installation services are completed based on the relative portion of labor hours completed as a percentage of the budgeted hours for the installation. Typically, in large scale deployments that include installation services, the contract terms segregate performance obligations related to hardware sales and installation services by providing for different legal transfer of title and risk of loss. In those circumstances, installation services are deemed to be a separate performance obligation. In each instance, installation services are recognized at the time of completion. Installation services revenues are classified as “Installation Services” within our disaggregated revenue.

Other Services

Software design and development services

Software design and custom development sales represent fixed fee orders for work on a time and materials basis and are recognized as revenue when the application, feature, or custom software code has been received and delivery has occurred to the customer. Revenue is recognized generally upon customer acceptance (point-in-time) of the software product and verification that it meets the required specifications. Software is delivered to customers electronically.

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Media sales

Media revenues are derived from selling (i) promotion and sponsorship packages to monetize customer infrastructure assets, including mobile takeover or physical presence, or (ii) digital advertising inventory to advertisers on digital displays or other outdoor structures, owned or controlled by our customers, each within physical venues. We generally donot own the physical structures on which digital advertising we sell is displayed but instead sell advertising or sponsorship opportunities on behalf of our media network owner customers to brands and advertisers. The Company has concluded that it acts as an agent and reports media revenues on a net basis, with the Company recording its commission, which typically is betweenthirty percent (30%) andforty percent (40%) of the total media sales contract, as revenue in the consolidated financial statements.

The media sales contracts we facilitate on behalf of our customers range from asingle day toeight years. The Company facilitates billing advertisers on behalf of our customers and doesnot remit the net cash to our customer until the advertiser has paid the Company the fees owed for such advertising. Media revenue services are recognized when the Company has completed its performance obligations under the contract with our customers, which typically has concluded upon facilitating execution of contracts between our customer and a brand/advertiser. The Company applies time-based constraints in accordance with ASC606 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.

NOTE5: SUPPLEMENTAL CASH FLOW STATEMENT INFORMATION

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NOTE6: INTANGIBLE ASSETS, INCLUDING GOODWILL

Intangible Assets

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

For thethree months ended* March 31, 2024and2023*, amortization of intangible assets charged to operations was $790 and $754, respectively.

Goodwill

Goodwill represents the excess of the purchase price over the fair value of net assets acquired. Goodwill is subject to an impairment review at a reporting unit level, on an annual basis at* September**30th* each fiscal year, when an event occurs, or circumstances change that would indicate potential impairment. The Company has onlyone 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* mayoccur. Specifically, the Company gave significant consideration to actual historic financial results, including revenue growth rates in the current and precedingthree* 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 wasnot considered to be impaired at* September 30, 2023.No indicators of impairment were identified at March 31, 2024.*

The Company recognizes that any changes in our projected2024 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.

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NOTE7: LOANS PAYABLE

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

Our largest shareholder and investor, Slipstream, a related party is the holder of all of our outstanding debt instruments, includingtwo term loans, and has beneficial ownership of approximately 29% of our common stock (on an as-converted, fully diluted basis including conversion of outstanding warrants, and assumingno other convertible securities, options and warrants are converted or exercised by other parties).

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Second Amended and Restated Loan and Security Agreement

On* February 17, 2022,*the Company and its subsidiaries (collectively, the “Borrowers”) refinanced their debt facilities with Slipstream, pursuant to the Credit Agreement. The Borrowers include Reflect, which became a wholly owned subsidiary of the Company as a result of the closing of the Merger. The debt facilities continue to be fully secured by all assets of the Borrowers.

The Credit Agreement also provides that the Company’s outstanding loans from Slipstream at* December 31, 2021,consisting of its pre-existing $4,767 senior secured term loan and $2,418 secured convertible loan, with an aggregate of $7,185 in outstanding principal and accrued and unpaid interest under such loans, were consolidated into a term loan (the “Consolidation Term Loan”). The Consolidation Term Loan has an interest rate of 10.0%, with 75.0% warrant coverage (or 898,165 warrants). On thefirst* day of each month, commencing* March 1, 2022through February 1, 2025,the Borrowers will make interest payments on the Consolidation Term Loan. Commencing on September 1, 2023,and on thefirst* day of each month thereafter until the Maturity Date, the Borrowers will make a payment on the Consolidation Term Loan, in an equal monthly installment of principal sufficient to fully amortize the Consolidation Term Loan ineighteen equal installments.

In addition to refinancing the existing debt with Slipstream, the Company issued to Slipstream a $10,000,36-month senior secured term loan (the “Acquisition Term Loan”) resulting in $10,000 in gross proceeds, or $9,950 in net proceeds. The Acquisition Term Loan matures on* February 17, 2025 (the “Maturity Date”) and has an interest rate of 8.0%, with 50.0% warrant coverage (or 833,334 warrants). On thefirst* day of each month, commencing* March 1, 2022through February 1, 2025,*the Borrowers will make interest-only payments on the Acquisition Term Loan.No principal payments on the Acquisition Term Loan are payable until the Maturity Date.

NOTE8: COMMITMENTS AND CONTINGENCIES

The Company isnot party to any material legal proceedings, other than ordinary routine litigation incidental to the business, and there wereno other such proceedings pending during the period covered by this Report.

NOTE9: INCOME TAXES

Our deferred tax assets are primarily related to net federal and state operating loss carryforwards (“NOLs”). We have substantial NOLs that are limited in usage by IRC Section382. IRC Section382 generally imposes an annual limitation on the amount of NOLs that* may*be used to offset taxable income when a corporation has undergone significant changes in stock ownership within a statutory testing period. We have performed a preliminary analysis of the annual NOL carryforwards and limitations that are available to be used against taxable income. Based on the history of losses of the Company, there continues to be a full valuation allowance against the net deferred tax assets of the Company with a definite life.

For thethree months ended* March 31, 2024and2023*, we reported tax liability of $9 and $43, respectively. At* March 31, 2024*, the net deferred tax liabilities were $77 after valuation allowance, compared to net tax liabilities of $73 at* December 31, 2023*.

NOTE10: WARRANTS

The Company had outstanding warrants accounted for as equity instruments in the Company's Condensed Consolidated Financial Statements totaling 4,587,002 at* March 31, 2024* and* December 31, 2023* with a weighted average exercise price of $4.90. The weighted average remaining contractual life of the outstanding warrants was 3.86 and 4.11 at* March 31, 2024* and* December 31, 2023*, respectively.

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NOTE11: STOCK-BASED COMPENSATION

A summary of outstanding options is included below:

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

Employee Awards

Stock-based compensation expense recognized for the issuance of stock options to employees for thethree months ended* March 31, 2024and2023* of $3 and $225, respectively, was included in general and administrative expense in the Condensed Consolidated Financial Statements. At* March 31, 2024*, there was $12 of total unrecognized compensation expense related to unvested share-based awards with market vesting criteria for employees. Compensation expense related to market vesting options will be recognized over the next11 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 thethree months ended* March 31, 2024and2023* was $0 and $43 and included in general and administrative expense in the Condensed Consolidated Financial Statements. At* March 31, 2024*, there wasno unrecognized compensation expense related to share-based awards for non-employee directors.

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NOTE12: SIGNIFICANT CUSTOMERS/VENDORS

Significant Customers

We hadfour customers that accounted for 19%,12%,12%, and 11% of accounts receivable at* March 31, 2024* andthree customers that accounted for 28%,25%, and 11% of accounts receivable at* December 31, 2023*.

We hadfour customers that accounted for 13%,12%,11%, and 10% of revenue for thethree months ended* March 31, 2024*, compared totwo customers that accounted for 31% and 13% of revenue for thethree months ended* March 31, 2023*.

Significant Vendors

We hadtwo vendors that accounted for 26% and 13% of outstanding accounts payable at* March 31, 2024*, andone vendor that accounted for 38% of outstanding accounts payable at* December 31, 2023*.

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