
PART 1. FINANCIAL INFORMATION Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements, including balance sheets, operations, cash flows, and equity, with detailed notes Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheet Highlights (in thousands) | Metric | March 31, 2021 | December 31, 2020 | | :--------------------------- | :------------- | :---------------- | | Total Current Assets | $10,152 | $7,027 | | Total Assets | $23,433 | $20,618 | | Total Current Liabilities | $8,029 | $7,333 | | Total Liabilities | $15,148 | $16,283 | | Total Shareholders' Equity | $8,285 | $4,335 | - The company's total assets increased by $2,815 thousand, and total shareholders' equity nearly doubled from December 31, 2020, to March 31, 2021, indicating improved financial position7 Condensed Consolidated Statements of Operations Condensed Consolidated Statements of Operations Highlights (in thousands) | Metric | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :-------------------------------------- | :-------------------------------- | :-------------------------------- | | Total Sales | $5,004 | $3,704 | | Gross Profit | $2,234 | $1,607 | | Operating Loss | $(213) | $(13,001) | | Total Other Income/(Expense) | $1,486 | $(337) | | Net Income/(Loss) | $1,272 | $(13,183) | | Basic Earnings/(Loss) per Common Share | $0.11 | $(1.35) | - The company reported a significant turnaround from a net loss of $13,183 thousand in Q1 2020 to a net income of $1,272 thousand in Q1 2021, primarily driven by increased sales and a substantial gain on settlement of obligations10 Condensed Consolidated Statements of Cash Flows Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Metric | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :---------------------------------------- | :-------------------------------- | :-------------------------------- | | Net Cash Used in Operating Activities | $(21) | $(117) | | Net Cash Used in Investing Activities | $(115) | $(268) | | Net Cash Provided by/(Used in) Financing Activities | $1,845 | $(8) | | Increase/(Decrease) in Cash and Cash Equivalents | $1,709 | $(393) | | Cash and Cash Equivalents, End of Period | $3,535 | $2,141 | - Cash and cash equivalents increased significantly by $1,709 thousand in Q1 2021, primarily due to net cash provided by financing activities, including proceeds from a registered direct offering13 Consolidated Statements of Shareholders' Equity Consolidated Statements of Shareholders' Equity Highlights (in thousands, except shares) | Metric | March 31, 2021 | December 31, 2020 | | :----------------------------------------- | :------------- | :---------------- | | Common Shares Outstanding | 11,840,811 | 10,924,287 | | Common Stock Amount | $118 | $109 | | Additional Paid-in Capital | $59,381 | $56,712 | | Accumulated Deficit | $(51,214) | $(52,486) | | Total Shareholders' Equity | $8,285 | $4,335 | - Total shareholders' equity increased substantially from $4,335 thousand to $8,285 thousand, driven by net income, stock-based compensation, conversion of a loan to equity, and proceeds from a registered direct offering16 Notes to Condensed Consolidated Financial Statements NOTE 1: NATURE OF ORGANIZATION AND OPERATIONS This note describes Creative Realities, Inc.'s business, operational structure, and key financial events impacting its going concern assessment - Creative Realities, Inc. provides digital marketing technology and solutions to retail companies and organizations across the US and internationally, specializing in digital merchandising, interactive shopping assistants, and other interactive marketing technologies20 - The company's main operations are conducted through Creative Realities, Inc. and its wholly-owned subsidiaries Allure Global Solutions, Inc. and Creative Realities Canada, Inc21 - The company achieved net income for Q1 2021, with cash and cash equivalents of $3,535 thousand and a working capital surplus of $2,123 thousand as of March 31, 202123 - The company's PPP Loan of $1,552 thousand was fully forgiven in January 2021, resulting in a gain24 - In February 2021, the company completed a registered direct offering, issuing 800,000 shares of common stock for net proceeds of approximately $1,849 thousand25 - In March 2021, the company refinanced its debt with Slipstream, extending maturity dates to March 31, 2023, converting a loan to equity, and gaining access to an additional $1,000 thousand line of credit27 - Management believes the company can continue as a going concern through at least June 30, 2022, supported by the PPP loan forgiveness, equity offering, debt refinancing, and operational forecast28 NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This note outlines the company's key accounting principles, including revenue recognition, inventory valuation, asset impairment, EPS calculation, and lease accounting - The financial statements are prepared in accordance with GAAP for interim reporting, reflecting all necessary adjustments for a fair statement of results3031 - Revenue is recognized following ASC 606, using a five-step model, allocating transaction price to performance obligations based on standalone selling prices3233 - Inventories are valued at the lower of cost or market using the FIFO method39 - Long-lived assets are reviewed for impairment under ASC 360; no triggering events for impairment were identified as of March 31, 202139 - Basic and diluted EPS are calculated using weighted average common shares outstanding, excluding anti-dilutive options and warrants43 - Deferred income taxes are recognized for temporary differences, with a valuation allowance established when necessary; no uncertain tax positions as of March 31, 202144 - Goodwill is tested for impairment annually as of September 30, or when impairment indicators arise45 - The company accounts for leases under ASU No. 2016-02 (Topic 842), recognizing ROU assets and liabilities based on the present value of lease payments4748 NOTE 3: RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS This note discusses the expected impact of recently issued accounting standards on the company's financial statements - The company does not expect the adoption of ASU 2020-06 (simplifying accounting for convertible instruments) in Q1 2022 to have a material impact on its consolidated financial statements52 - The company is currently evaluating the disclosure requirements related to ASU 2016-13 (Financial Instruments—Credit Losses), effective for smaller reporting companies after December 15, 202253 NOTE 4: REVENUE RECOGNITION This note details the company's revenue recognition policies and disaggregates revenue by major source Disaggregated Revenue by Major Source (in thousands) | Revenue Source | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :------------------------ | :-------------------------------- | :-------------------------------- | | Hardware | $2,816 | $1,367 | | Installation Services | $575 | $869 | | Software Development Services | $274 | $142 | | Managed Services | $1,339 | $1,326 | | Total Hardware and Services | $5,004 | $3,704 | - Hardware sales significantly increased from $1,367 thousand in Q1 2020 to $2,816 thousand in Q1 2021, while installation services decreased54 - Revenue from system hardware sales is recognized upon shipment or customer acceptance, while installation services revenue is recognized over time based on labor hours completed5558 - Software design and development revenue is recognized at a point in time upon customer acceptance, and Software as a Service (SaaS) and maintenance/support revenues are recognized ratably over the contract term606163 NOTE 5: FAIR VALUE MEASUREMENT This note explains the company's fair value measurement hierarchy and the valuation of financial instruments - The company uses a three-level hierarchy for fair value measurements, with Level 3 valuations involving unobservable inputs and management judgment, such as for goodwill impairment and the Convertible Loan656667 - A $166 thousand gain was recognized in Q1 2021 from the change in fair value of the Convertible Loan, compared to a $151 thousand loss in Q1 2020, based on a third-party valuation68 NOTE 6: SUPPLEMENTAL CASH FLOW STATEMENT INFORMATION This note provides additional details on cash payments for interest and income taxes Supplemental Cash Flow Information (in thousands) | Cash Paid During the Period For: | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :------------------------------- | :-------------------------------- | :-------------------------------- | | Interest | $0 | $107 | | Income Taxes, Net | $0 | $1 | - No cash interest or income taxes were paid during the three months ended March 31, 2021, a decrease from the prior year69 NOTE 7: INTANGIBLE ASSETS, INCLUDING GOODWILL This note details the company's intangible assets and goodwill, including their valuation and impairment testing Intangible Assets Intangible Assets, Net Book Value (in thousands) | Intangible Asset | March 31, 2021 | December 31, 2020 | | :-------------------------- | :------------- | :---------------- | | Technology platform | $1,172 | $1,235 | | Customer relationships | $2,412 | $2,460 | | Trademarks and trade names | $66 | $95 | | Net Book Value | $3,650 | $3,790 | - Amortization of intangible assets was $140 thousand in Q1 2021, down from $159 thousand in Q1 2020. The company wrote off $380 thousand fully amortized trade name and $1,370 thousand customer list assets in Q1 2021 with no impact on financial statements70 Goodwill - Goodwill is tested for impairment annually as of September 30. No indicators of impairment were present as of or during the three months ended March 31, 202173 - In Q1 2020, a non-cash goodwill impairment loss of $10,646 thousand was recorded due to reduced cash flow projections and a significant decline in market capitalization caused by the COVID-19 pandemic74 NOTE 8: LOANS PAYABLE This note provides a summary of the company's outstanding debt, including details on the PPP Loan, amended credit agreement, and seller note Loans Payable Summary Outstanding Debt as of March 31, 2021 (in thousands) | Debt Type | Principal | Maturity Date | Warrants | Interest Rate Information | | :------------------------ | :-------- | :------------ | :------- | :------------------------ | | New Term Loan (G) | $4,577 | 3/31/2023 | 649,965 | 8.0% interest | | Seller Note (D) | $1,637 | 2/15/2020 | - | 3.5% interest | | Convertible Loan (H) | $2,298 | 3/31/2023 | - | 10.0% interest | | Total Debt, Gross | $8,512 | | | | | Fair Value Adjustment (H) | $(166) | | | | | Total Debt, Net | $8,117 | | | | - Total net debt decreased from $9,895 thousand at December 31, 2020, to $8,117 thousand at March 31, 2021, primarily due to the forgiveness of the PPP Loan and refinancing activities77 SBA Paycheck Protection Program Loan - The $1,552 thousand PPP Loan, including accrued interest, was fully forgiven on January 11, 2021, resulting in a gain of $1,552 thousand80 Amended and Restated Loan and Security Agreement - On March 7, 2021, the company refinanced debt facilities with Slipstream, extending maturity dates to March 31, 2023, consolidating existing loans into a New Term Loan ($4,550k), increasing the Convertible Loan ($2,280k), and extinguishing a $264k escrow loan by converting it to equity81 - The New Term Loan accrues 8% interest, while the Line of Credit and Convertible Loan accrue 10% interest. Interest payments prior to October 1, 2021, are payable as PIK (paid-in-kind)8283 - The Convertible Loan was accounted for as an extinguishment due to a substantive conversion feature, with changes in fair value recorded through the statement of operations88 - A net gain of $26 thousand from the extinguishment of the Special Loan was recorded as additional paid-in capital89 Secured Disbursed Escrow Promissory Note - The $264 thousand Secured Disbursed Escrow Promissory Note, bearing no interest, was converted into equity (Disbursed Escrow Conversion Shares) on March 7, 2021, as part of the Credit Agreement refinancing92 Amended and Restated Seller Note from acquisition of Allure - The Amended and Restated Seller Note, with a principal of $1,637 thousand and 3.5% interest, matured on February 15, 2020, and was subject to arbitration due to non-payment and claims of breach of contract7795 - On May 13, 2021, the company settled the outstanding balance of principal and accrued interest for $100 thousand, expecting to record a gain on settlement of $1,624 thousand in Q2 202196 NOTE 9: COMMITMENTS AND CONTINGENCIES This note outlines the company's legal proceedings, settlement of obligations, and employee-related expenses Litigation - The company is involved in litigation regarding a breach of contract and warranty claim against a supplier, and a $3,200 thousand demand from an Allure customer for alleged breach of contract related to hardware failures9798 - The outcome and potential liability/recovery for these cases are currently unclear and cannot be reasonably estimated98 - The arbitration with the Seller regarding the Amended and Restated Seller Note was settled on May 13, 2021, for $100 thousand, with a mutual release of claims, expecting a $1,624 thousand gain on settlement in Q2 2021101 Settlement of obligations - A gain of $1,552 thousand was recorded in Q1 2021 due to the full forgiveness of the PPP Loan and accrued interest103 Employee-related Expenses - In Q1 2020, the company accrued $135 thousand for one-time termination benefits due to a reduction-in-force; no comparable activities occurred in Q1 2021104 NOTE 10: RELATED PARTY TRANSACTIONS This note discloses sales and accounts receivable balances with related parties - Sales to 33 Degrees Convenience Connect, Inc., a related party, decreased from $500 thousand (13.5% of consolidated revenue) in Q1 2020 to $111 thousand (2.2%) in Q1 2021106 - Accounts receivable from 33 Degrees also decreased from $40 thousand (1.2% of consolidated accounts receivable) at December 31, 2020, to $13 thousand (0%) at March 31, 2021106 NOTE 11: INCOME TAXES This note details the company's income tax position, including net operating loss carryforwards and deferred tax assets - The company has substantial net operating loss (NOL) carryforwards, limited by IRC Section 382, and maintains a full valuation allowance against net deferred tax assets due to a history of losses108 - No tax liability was reported for Q1 2021, and net deferred tax assets remained $0 after valuation allowance, consistent with December 31, 2020109 NOTE 12: WARRANTS This note summarizes the company's outstanding equity warrants, including their number, exercise price, and contractual life Outstanding Equity Warrants Summary | Metric | January 1, 2021 | March 31, 2021 | | :----------------------------------- | :-------------- | :------------- | | Warrants (Equity) Amount | 4,426,900 | 4,418,566 | | Weighted Average Exercise Price | $4.62 | $4.58 | | Weighted Average Remaining Contractual Life | 2.83 years | 2.33 years | - The number of outstanding warrants slightly decreased due to expirations, and the weighted average exercise price and remaining contractual life also saw minor reductions110 NOTE 13: STOCK-BASED COMPENSATION This note provides details on the company's stock-based compensation plans, including outstanding options, valuation methods, and related expenses Outstanding Options Summary Outstanding Time Vesting Options (March 31, 2021) | Range of Exercise Prices | Number Outstanding | Weighted Average Remaining Contractual Life | Weighted Average Exercise Price | | :----------------------- | :----------------- | :------------------------------------------ | :------------------------------ | | $0.01 - $3.00 | 1,525,000 | 9.17 | $2.52 | | $3.01 - $7.50 | 184,830 | 5.10 | $6.72 | | $7.51+ | 103,979 | 4.20 | $11.74 | | Total | 1,813,809 | 8.47 | $3.48 | Outstanding Performance Vesting Options (March 31, 2021) | Range of Exercise Prices | Number Outstanding | Weighted Average Remaining Contractual Life | Weighted Average Exercise Price | | :----------------------- | :----------------- | :------------------------------------------ | :------------------------------ | | $0.01 - $3.00 | 800,000 | 9.18 | $2.53 | - The weighted average remaining contractual life for exercisable options was 4.9 years as of March 31, 2021111 Valuation Information for Stock-Based Compensation - Stock options are valued using the Black-Scholes model. In June 2020, 2,380,000 options were granted, with 1,580,000 time-vesting and 800,000 performance-vesting112113114 Black-Scholes Model Assumptions for June 2020 Grants | Assumption | Value | | :------------------------ | :---------- | | Risk-free interest rate | 0.66 % | | Expected term | 6.25 years | | Expected price volatility | 89.18 % | | Dividend yield | 0 % | - Performance options vest based on revenue and EBITDA targets for calendar years 2020, 2021, and 2022, with a catch-up provision for unvested options114115 - In Q1 2021, the company deemed it probable to achieve the 2021 EBITDA target and recorded $263 thousand in catch-up compensation expense, anticipating an additional $79 thousand per quarter for the remainder of 2021117 Stock Compensation Expense Information - Compensation expense for stock options was $539 thousand in Q1 2021, a significant increase from $50 thousand in Q1 2020, included in general and administrative expense120 - Unrecognized compensation expense related to unvested awards totaled approximately $2,113 thousand for time-vesting and $1,236 thousand for performance-vesting awards as of March 31, 2021121 NOTE 14: SIGNIFICANT CUSTOMERS/VENDORS This note identifies customers and vendors that account for a significant portion of the company's accounts receivable, revenue, and accounts payable - Two customers accounted for 41.6% of accounts receivable as of March 31, 2021, and 42.6% as of December 31, 2020122 - Two customers accounted for 40% of revenue in Q1 2021, and three customers accounted for 40% in Q1 2020. 33 Degrees, a related party, represented 2.2% and 13.6% of revenue for these periods, respectively122 - Three vendors accounted for 48% of outstanding accounts payable at March 31, 2021, and two vendors for 47% at December 31, 2020123 NOTE 15: LEASES This note details the company's operating lease agreements, including terms, costs, and maturity schedules - The company has non-cancelable operating lease agreements expiring between 2021 and 2025, with a weighted average remaining operating lease term of 3.4 years and a discount rate of 10.0% as of March 31, 2021125126 Lease Costs (in thousands) | Lease Cost Component | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :------------------- | :-------------------------------- | :-------------------------------- | | Finance lease amortization | $4 | $7 | | Operating lease cost | $84 | $172 | | Total lease cost | $88 | $180 | Maturities of Operating Lease Liabilities (in thousands) | Year | Operating Leases | | :--------------- | :--------------- | | Remainder of 2021 | $263 | | 2022 | $294 | | 2023 | $291 | | 2024 | $81 | | Thereafter | $74 | | Total Undiscounted Cash Flows | $1,003 | | Present Value of Lease Liabilities | $859 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition and results of operations for Q1 2021 compared to Q1 2020 Overview This section provides a general description of Creative Realities, Inc.'s business and its revenue generation model - Creative Realities, Inc. provides digital marketing technology solutions across approximately fifteen vertical markets, including digital merchandising, interactive shopping assistants, and content/network management130 - The company generates revenue through bundled-solution sales, consulting, design, software development, implementation, software license fees, and maintenance/support services134 Recent Developments This section highlights recent events impacting the company, including the COVID-19 pandemic, semiconductor shortage, new product launches, and financing activities COVID-19 Pandemic - The COVID-19 pandemic caused rapid deterioration in business, reduced demand for services, and delayed customer orders, leading to a $10,646 thousand non-cash goodwill impairment loss in Q1 2020136 - Despite current demand curtailment, the long-term outlook for the digital signage industry remains strong, with expectations of rapid consolidation and enhanced profitability for enterprise-level providers137 Semiconductor Chip Shortage - A global semiconductor chip shortage is causing delays and potentially increased costs for digital displays, impacting the company's ability to fulfill orders, prolonging sales cycles, and potentially reducing margins139 Safe Space Solutions - The company launched 'Safe Space Solutions' products, including the AI-integrated Thermal Mirror, generating $1,019 thousand in revenue in Q1 2021, with no comparable revenue in Q1 2020140141 Registered Direct Offering - In February 2021, the company completed a registered direct offering, issuing 800,000 shares of common stock for gross proceeds of $2,000 thousand and net proceeds of approximately $1,849 thousand144 Amended and Restated Credit Agreement - In March 2021, the company refinanced its debt facilities with Slipstream, extending maturity dates and restructuring existing loans145 Our Sources of Revenue This section describes the various ways the company generates revenue from its digital marketing solutions - Revenue is generated from digital marketing solution sales, including hardware, professional services, software development, licensing, deployment, and maintenance/support146 - Sales are primarily driven by internal sales and business development personnel, supplemented by agents, strategic partners, and lead generators147 Our Expenses This section outlines the company's primary expense categories, including sales and marketing, research and development, and general and administrative costs - Primary expense categories include sales and marketing (salaries, commissions, events), research and development (software platform development), and general and administrative (corporate overhead, legal, accounting)148 Critical Accounting Policies and Estimates This section discusses the significant judgments, assumptions, and estimates used in preparing the company's financial statements - The company's financial statements rely on significant judgments, assumptions, and estimates, including allowance for doubtful accounts, deferred tax valuation allowances, fair value of acquired assets/liabilities, stock-based compensation, and recoverability of long-lived assets149 Results of Operations This section provides a detailed analysis of the company's financial performance for the three months ended March 31, 2021, compared to the same period in 2020 Three Months Ended March 31, 2021 Compared to Three Months Ended March 31, 2020 Key Financial Performance Changes (in thousands) | Metric | 2021 | 2020 | Change (Dollars) | Change (%) | | :-------------------------------------- | :-------- | :--------- | :--------------- | :--------- | | Sales | $5,004 | $3,704 | $1,300 | 35% | | Gross Profit | $2,234 | $1,607 | $627 | 39% | | Sales and Marketing Expenses | $335 | $427 | $(92) | -22% | | Research and Development Expenses | $171 | $313 | $(142) | -45% | | General and Administrative Expenses | $2,109 | $2,512 | $(403) | -16% | | Bad Debt (recovery)/expense | $(512) | $344 | $(856) | -249% | | Goodwill impairment | $- | $10,646 | $(10,646) | -100% | | Operating Loss | $(213) | $(13,001) | $12,788 | -98% | | Gain on settlement of obligations | $1,565 | $40 | $1,525 | 3813% | | Net Income/(Loss) | $1,272 | $(13,183) | $14,455 | -110% | Sales - Sales increased by $1,300 thousand (35%) in Q1 2021 compared to Q1 2020, primarily driven by $1,019 thousand from Safe Space Solutions products and services and a $1,162 thousand expansion with an existing customer154 Gross Profit - Gross profit increased by $627 thousand (39%) to $2,234 thousand in Q1 2021, with 90% of the increase attributable to higher sales and the remainder from an improved gross margin percentage (44.6% vs. 43.4%) due to increased recurring revenues155 Sales and Marketing Expenses - Sales and marketing expenses decreased by $92 thousand (22%) in Q1 2021, mainly due to reduced personnel costs and lower spending on trade show activities and travel following COVID-19 cancellations157 Research and Development Expenses - Research and development expenses decreased by $142 thousand (45%) in Q1 2021, resulting from reduced personnel costs and reallocation of resources to revenue-generating activities158 General and Administrative Expenses - General and administrative expenses decreased by $403 thousand (16%) in Q1 2021, driven by $552 thousand reduction in personnel costs and $117 thousand in rent expense savings, partially offset by a $233 thousand increase in stock compensation amortization159 Bad Debt - Bad debt expenses decreased by $856 thousand (249%) in Q1 2021, primarily due to a $555 thousand cash recovery from a customer bankruptcy160 Depreciation and Amortization Expenses - Depreciation and amortization expenses decreased by $22 thousand (6%) in Q1 2021, as a trade name asset became fully amortized in 2020161 Goodwill impairment - No goodwill impairment was recorded in Q1 2021, compared to a $10,646 thousand non-cash impairment charge in Q1 2020153162 Interest Expense - Interest expense increased by $22 thousand (10%) to $249 thousand in Q1 2021153 Change in fair value of convertible loans - A $166 thousand gain was recognized in Q1 2021 from the change in fair value of the Convertible Loan, a significant improvement from a $151 thousand loss in Q1 2020165 Summary Unaudited Quarterly Financial Information Unaudited Quarterly Financial Information (in thousands) | Quarters Ended | March 31, 2021 | December 31, 2020 | September 30, 2020 | June 30, 2020 | March 31, 2020 | | :--------------- | :------------- | :---------------- | :----------------- | :------------ | :------------- | | Net Sales | $5,004 | $4,990 | $5,107 | $3,656 | $3,704 | | Gross Profit | $2,234 | $2,253 | $2,444 | $1,817 | $1,607 | | Operating Income (Loss) | $(213) | $(1,002) | $(422) | $(1,644) | $(13,001) | | Net Income (Loss) | $1,272 | $(617) | $(585) | $(2,459) | $(13,183) | Supplemental Operating Results on a Non-GAAP Basis EBITDA and Adjusted EBITDA (Non-GAAP, in thousands) | Quarters Ended | March 31, 2021 | December 31, 2020 | September 30, 2020 | June 30, 2020 | March 31, 2020 | | :--------------- | :------------- | :---------------- | :----------------- | :------------ | :------------- | | GAAP Net Income (Loss) | $1,272 | $(617) | $(585) | $(2,459) | $(13,183) | | EBITDA | $2,378 | $249 | $304 | $(1,716) | $(12,726) | | Adjusted EBITDA | $674 | $(369) | $228 | $(1,147) | $(1,939) | - EBITDA and Adjusted EBITDA showed significant improvement in Q1 2021, with EBITDA reaching $2,378 thousand and Adjusted EBITDA at $674 thousand, compared to negative figures in prior periods169 Liquidity and Capital Resources This section discusses the company's cash position, working capital, and key events impacting its liquidity and capital resources - As of March 31, 2021, the company had cash and cash equivalents of $3,535 thousand and a working capital surplus of $2,123 thousand, an improvement from a net loss in 2020 and negative operating cash flows170 - Key liquidity events include the forgiveness of the $1,552 thousand PPP Loan, net proceeds of $1,849 thousand from a registered direct offering, and debt refinancing with Slipstream extending maturities and providing a $1,000 thousand line of credit171172173 - Management believes these actions, along with operational forecasts, support the company's ability to continue as a going concern through at least June 30, 2022174 - The ongoing semiconductor chip shortage poses a risk to liquidity by potentially delaying revenue recognition and increasing costs for digital displays177 Operating Activities - Net cash used in operating activities decreased to $21 thousand in Q1 2021 from $117 thousand in Q1 2020. Net income of $1,272 thousand was offset by the addback of the $1,552 thousand PPP Loan forgiveness gain178 - Cash flows were influenced by increases in deferred revenues ($661 thousand) and inventories ($225 thousand), offset by a $1,491 thousand increase in accounts receivable178 Investing Activities - Net cash used in investing activities decreased to $115 thousand in Q1 2021 from $268 thousand in Q1 2020, primarily for capitalization of internal and external software development179 Financing Activities - Net cash provided by financing activities was $1,845 thousand in Q1 2021, a significant change from $8 thousand used in Q1 2020, driven by $1,849 thousand net proceeds from a registered direct offering180 Contractual Obligations This section states the company's commitments for capital expenditures - The company has no material commitments for capital expenditures and does not anticipate significant capital expenditures for the remainder of 2021181 Off-Balance Sheet Arrangements This section confirms the absence of material off-balance sheet arrangements - The company did not engage in any material off-balance sheet arrangements during the three months ended March 31, 2021182 Item 4. Controls and Procedures This section details the evaluation of the company's disclosure controls and procedures and reports on any changes in internal control over financial reporting Evaluation of Disclosure Controls and Procedures - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of March 31, 2021183 Changes in Internal Control over Financial Reporting - There were no changes in internal control over financial reporting during Q1 2021 that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting185 PART II. OTHER INFORMATION Item 1. Legal Proceedings This section states that there are no material legal proceedings to report, beyond what is disclosed in the financial statements - No material legal proceedings are reported under this item188 Item 1A. Risk Factors This section highlights a new significant risk factor related to the global semiconductor chip shortage and its potential adverse impact on the company's ability to procure hardware, fulfill orders, and maintain margins - A global shortage of semiconductor chips is adversely impacting the company's ability to procure digital displays, leading to expected delays, increased costs, longer sales cycles, and potential reduction in margins190191 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section indicates that there were no unregistered sales of equity securities or use of proceeds to report - No unregistered sales of equity securities or use of proceeds are reported192 Item 3. Defaults Upon Senior Securities This section confirms that there were no defaults upon senior securities - No defaults upon senior securities are reported193 Item 4. Mine Safety Disclosures This section states that mine safety disclosures are not applicable to the company - Mine safety disclosures are not applicable194 Item 5. Other Information This section provides an update on the settlement of the arbitration with Christie Digital Systems, Inc. regarding the Amended and Restated Seller Note - On May 13, 2021, the company settled the arbitration with Christie Digital Systems, Inc. for $100 thousand, resolving claims related to the Amended and Restated Seller Note. A gain on settlement of $1,624 thousand is expected in Q2 2021195196 Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including key agreements, certifications, and XBRL documents - Exhibits include the Amended and Restated Loan and Security Agreement, Securities Purchase Agreement, CEO and CFO certifications (pursuant to Exchange Act Rule 13a-14(a) and 18 U.S.C. Section 1350), a press release, and XBRL documents198 SIGNATURES This section contains the required signatures of the registrant's authorized officers, including the Chief Executive Officer and Chief Financial Officer, certifying the report - The report is signed by Richard Mills, Chief Executive Officer, and Will Logan, Chief Financial Officer, on May 17, 2021202