Item 2. Management’s Discussion and Analysis of Financial
Condition and Results of Operations Forward-Looking Statements
The following discussion contains various
forward-looking statements within the meaning of Section 21E of the Exchange Act. Although we believe that, in making any such
statement, our expectations are based on reasonable assumptions, any such statement may be influenced by factors that could cause
actual outcomes and results to be materially different from those projected. When used in the following discussion, the words “anticipates,”
“believes,” “expects,” “intends,” “plans,” “estimates” and similar
expressions, as they relate to us or our management, are intended to identify such forward-looking statements. These forward-looking
statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from those anticipated.
Factors that could cause actual results to differ materially from those anticipated, certain of which are beyond our control, are
set forth under the caption “Risk Factors” in the Company’s Form 10-K for the year ended December 31, 2018 as
filed with the Securities and Exchange Commission on March 28, 2019.
Our actual results, performance or achievements
could differ materially from those expressed in, or implied by, forward-looking statements. Accordingly, we cannot be certain that
any of the events anticipated by forward-looking statements will occur or, if any of them do occur, what impact they will have
on us. 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.
Overview
Creative Realities, Inc. is a Minnesota corporation
that provides innovative digital marketing technology solutions to a broad range of companies, individual brands, enterprises,
and organizations throughout the United States and in certain international markets. We have expertise in a broad range of existing
and emerging digital marketing technologies across 18 vertical markets, as well as the related media management and distribution
software platforms and networks, device and content 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; content creation, production and scheduling programs and systems; a comprehensive series of recurring
maintenance, support, and field service offerings; 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.
Our main operations are conducted directly
through Creative Realities, Inc. and our wholly owned subsidiaries Allure Global Solutions, Inc., a Georgia corporation, Creative
Realities Canada, Inc., a Canadian corporation and ConeXus World Global, LLC, a Kentucky limited liability company. Our other wholly
owned subsidiary Creative Realities, LLC, a Delaware limited liability company, has been effectively dormant since October 2015,
the date of the merger with ConeXus World Global, LLC.
We generate revenue in our business by:
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consulting with our customers to determine the technologies and solutions required to achieve their specific goals, strategies and objectives;
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●
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designing our customers’ digital marketing experiences, content and interfaces;
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●
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engineering the systems architecture delivering the digital marketing experiences we design – both software and hardware – and integrating those systems into a customized, reliable and effective digital marketing experience;
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managing the efficient, timely and cost-effective deployment of our digital marketing technology solutions for our customers;
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delivering and updating the content of our digital marketing technology solutions using a suite of advanced media, content and network management software products; and
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●
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maintaining our customers’ digital marketing technology solutions by: providing content production and related services; creating additional software-based features and functionality; hosting the solutions; monitoring solution service levels; and responding to and/or managing remote or onsite field service maintenance, troubleshooting and support calls.
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These activities generate revenue through:
bundled-solution sales; consulting services, experience design, content development and production, software development, engineering,
implementation, and field services; software license fees; and maintenance and support services related to our software, managed
systems and solutions.
Our Sources of Revenue
We generate revenue through digital marketing
solution sales, which include system hardware, professional and implementation services, software design and development, software
licensing, deployment, and maintenance and support services.
We currently market and sell our technology
and solutions primarily through our sales and business development personnel, but we also utilize agents, strategic partners, and
lead generators who provide us with access to additional sales, business development and licensing opportunities.
Our Expenses
Our expenses are primarily comprised of three
categories: sales and marketing, research and development, and general and administrative. Sales and marketing expenses include
salaries and benefits for our sales, business development solution management and marketing personnel, and commissions paid on
sales. This category also includes amounts spent on marketing networking events, promotional materials, hardware and software to
prospective new customers, including those expenses incurred in trade shows and product demonstrations, and other related expenses.
Our research and development expenses represent the salaries and benefits of those individuals who develop and maintain our proprietary
software platforms and other software applications we design and sell to our customers. Our general and administrative expenses
consist of corporate overhead, including administrative salaries, real property lease payments, salaries and benefits for our corporate
officers and other expenses such as legal and accounting fees.
Critical Accounting Policies and Estimates
The Company’s significant accounting
policies are described in Note 2 of the Company’s Condensed Consolidated Financial Statements included elsewhere in this
filing. The Company’s Condensed Consolidated Financial Statements are prepared in conformity with accounting principles generally
accepted in the United States. Certain accounting policies involve significant judgments, assumptions, and estimates by management
that could have a material impact on the carrying value of certain assets and liabilities and disclosure of contingent assets and
liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during
the reporting period. Our actual results could differ from those estimates.
Results of Operations
Note: All dollar amounts reported in Results of Operations
are in thousands, except per-share information.
Three Months Ended June 30, 2019 Compared to Three Months
Ended June 30, 2018
The tables presented
below compare our results of operations and present the results for each period and the change in those results from one period
to another in both dollars and percentage change.
|
|
|
For the three months ended
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
Change
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Dollars
|
|
|
%
|
|
|
Sales
|
|
$
|
9,314
|
|
|
$
|
7,179
|
|
|
$
|
2,135
|
|
|
|
30
|
%
|
|
Cost of sales
|
|
|
5,086
|
|
|
|
4,089
|
|
|
|
997
|
|
|
|
24
|
%
|
|
Gross profit
|
|
|
4,228
|
|
|
|
3,090
|
|
|
|
1,138
|
|
|
|
37
|
%
|
|
Sales and marketing expenses
|
|
|
610
|
|
|
|
538
|
|
|
|
72
|
|
|
|
13
|
%
|
|
Research and development expenses
|
|
|
394
|
|
|
|
297
|
|
|
|
97
|
|
|
|
33
|
%
|
|
General and administrative expenses
|
|
|
2,421
|
|
|
|
1,938
|
|
|
|
483
|
|
|
|
25
|
%
|
|
Depreciation and amortization expense
|
|
|
308
|
|
|
|
324
|
|
|
|
(16
|
)
|
|
|
-5
|
%
|
|
Total operating expenses
|
|
|
3,733
|
|
|
|
3,097
|
|
|
|
636
|
|
|
|
21
|
%
|
|
Operating income/(loss)
|
|
|
495
|
|
|
|
(7
|
)
|
|
|
502
|
|
|
|
7,171
|
%
|
|
Other income/(expenses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(213
|
)
|
|
|
(752
|
)
|
|
|
539
|
|
|
|
-72
|
%
|
|
Change in fair value of warrant liability
|
|
|
22
|
|
|
|
11
|
|
|
|
11
|
|
|
|
100
|
%
|
|
Gain on settlement of obligations
|
|
|
6
|
|
|
|
39
|
|
|
|
(33
|
)
|
|
|
-85
|
%
|
|
Other expense
|
|
|
-
|
|
|
|
(5
|
)
|
|
|
5
|
|
|
|
-100
|
%
|
|
Total other expense
|
|
|
(185
|
)
|
|
|
(707
|
)
|
|
|
522
|
|
|
|
-74
|
%
|
|
Net income/(loss) before income taxes
|
|
|
310
|
|
|
|
(714
|
)
|
|
|
1,024
|
|
|
|
143
|
%
|
|
Benefit from provision for income taxes
|
|
|
107
|
|
|
|
102
|
|
|
|
5
|
|
|
|
5
|
%
|
|
Net income/(loss)
|
|
$
|
417
|
|
|
$
|
(612
|
)
|
|
$
|
1,029
|
|
|
|
168
|
%
|
Sales
Sales increased by $2,135, or 30%, in the
three months ended June 30, 2019 compared to the same period in 2018 driven by $1,328 from new customers, $1,160 contributed by
legacy Allure customers, partially offset by a reduction of $344 in sales to related parties.
Gross Profit
Gross profit increased $1,138 in absolute
dollars from $3,090 to $4,288, or 37%, primarily as a result of the increase in sales. Gross profit margin increased to 45% in
the three months ended June 30, 2019 from 43% during the same period in 2018. The increase in gross profit margin percentage is
the result of product mix during the period, which was 82% services, including software development services, in 2019.
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 $72, or 13%, in the three months ended June 30, 2019 compared
to the same period in 2018 a result of increased sales headcount following the Allure Acquisition and participation in an increased
number of trade shows and customer-facing events.
Research and Development
Expenses
Research and development expenses increased
by $97, or 33%, in the three months ended June 30, 2019 compared to the same period in 2018 due to increased development headcount
as a result of the Allure Acquisition.
General and Administrative
Expenses
Total general and administrative expenses
increased by $483, or 25%, in the three months ended June 30, 2019 compared to the same period in 2018 as a result of (1) a net
increase of $189 in non-recurring, non-cash charges for stock-based compensation expense, primarily driven by $250 from vesting
of previously issued performance restricted stock units (“PRSUs”) during the period partially offset by a reduction
in stock compensation expense recorded from vesting of stock options as several have fully vested in the most recent twelve month
period, (2) $110 of amortized retention bonus expense acquired in the Allure Acquisition, and (3) an increase of $154 in rent expense
driven by the additional office from the Allure Acquisition and expanded operations in Louisville, KY, our Corporate headquarters.
Depreciation and
Amortization Expenses
Depreciation and amortization expenses increased
by $16, or 5%, in the three months ended June 30, 2019 compared to the same period in 2018 due to additional assets as a result
of the Allure Acquisition.
Interest Expense
See Note 9 to the condensed consolidated
financial statements for a discussion of the Company’s debt and related interest expense obligations.
Change in Fair
Value of Warrant Liability
See Note 6 to the condensed consolidated
financial statements for a discussion of the Company’s non-cash change in warrant liability for the three months ended June
30, 2019, the methodology for which is consistent for the three months ended June 30, 2018. The change in the fair value of the
warrant liability resulted in a gain in the three months ended June 30, 2019 of $22.
Gain on Settlement
of Obligations
During the three months ended June 30, 2019,
the Company wrote off obligations and recognized a gain of $6.
On August 10, 2017, we announced the planned
closure of our office facilities located at 22 Audrey Place, Fairfield, New Jersey 07004 which housed our previous operations center
and ceased use of the facilities in February 2018. In ceasing use of these facilities, we recorded a one-time non-cash charge of
$474 to accrue for the remaining rent under the lease term, net of anticipated subtenant rental income. Effective June 30, 2018,
we entered into a settlement agreement to exit this lease agreement, resulting in the Company recording a gain on settlement of
$39 in the three months ended June 30, 2018.
Six Months Ended June 30, 2019 Compared to Six Months Ended
June 30, 2018
The tables presented
below compare our results of operations and present the results for each period and the change in those results from one period
to another in both dollars and percentage change.
|
|
|
For the six months ended
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
Change
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Dollars
|
|
|
%
|
|
|
Sales
|
|
$
|
18,798
|
|
|
$
|
11,245
|
|
|
$
|
7,553
|
|
|
|
67
|
%
|
|
Cost of sales
|
|
|
10,889
|
|
|
|
6,646
|
|
|
|
4,243
|
|
|
|
64
|
%
|
|
Gross profit
|
|
|
7,909
|
|
|
|
4,599
|
|
|
|
3,310
|
|
|
|
72
|
%
|
|
Sales and marketing expenses
|
|
|
1,307
|
|
|
|
1,041
|
|
|
|
266
|
|
|
|
26
|
%
|
|
Research and development expenses
|
|
|
767
|
|
|
|
618
|
|
|
|
149
|
|
|
|
24
|
%
|
|
General and administrative expenses
|
|
|
4,711
|
|
|
|
3,641
|
|
|
|
1,070
|
|
|
|
29
|
%
|
|
Depreciation and amortization expense
|
|
|
594
|
|
|
|
651
|
|
|
|
(57
|
)
|
|
|
-9
|
%
|
|
Lease termination expense
|
|
|
-
|
|
|
|
474
|
|
|
|
(474
|
)
|
|
|
-100
|
%
|
|
Total operating expenses
|
|
|
7,379
|
|
|
|
6,425
|
|
|
|
954
|
|
|
|
15
|
%
|
|
Operating income/(loss)
|
|
|
530
|
|
|
|
(1,826
|
)
|
|
|
2,356
|
|
|
|
129
|
%
|
|
Other income/(expenses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(417
|
)
|
|
|
(1,326
|
)
|
|
|
909
|
|
|
|
-69
|
%
|
|
Change in fair value of warrant liability
|
|
|
21
|
|
|
|
208
|
|
|
|
(187
|
)
|
|
|
-90
|
%
|
|
Gain on settlement of obligations
|
|
|
13
|
|
|
|
39
|
|
|
|
(26
|
)
|
|
|
-67
|
%
|
|
Other expense
|
|
|
-
|
|
|
|
(1
|
)
|
|
|
1
|
|
|
|
-100
|
%
|
|
Total other expense
|
|
|
(383
|
)
|
|
|
(1,080
|
)
|
|
|
697
|
|
|
|
-65
|
%
|
|
Net income/(loss) before income taxes
|
|
|
147
|
|
|
|
(2,906
|
)
|
|
|
3,053
|
|
|
|
105
|
%
|
|
Benefit from provision for income taxes
|
|
|
86
|
|
|
|
56
|
|
|
|
30
|
|
|
|
54
|
%
|
|
Net income/(loss)
|
|
$
|
233
|
|
|
$
|
(2,850
|
)
|
|
$
|
3,083
|
|
|
|
108
|
%
|
Sales
Sales increased by $7,553, or 67%, in the
six months ended June 30, 2019 compared to the same period in 2018 driven by $3,605 from new customers, $2,442 contributed by legacy
Allure customers and the remainder through expansion and growth in the pre-existing customer base, partially offset by a reduction
of $566 in sales to related parties.
Gross Profit
Gross profit increased $3,310 in absolute
dollars from $4,599 to $7,909, or 72% during the six months ended June 30, 2019 versus the same period in the prior year driven
by an increase in sales and an increase in services revenue as a percentage of total revenue from 64% to 83%. Gross profit margin
increased from 41% for the six months ended June 30, 2018 to 42% in 2019 during the same period.
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 $266, or 26%, in the six months ended June 30, 2019 compared
to the same period in 2018 as a result of increased sales headcount following the Allure Acquisition and participation in an increased
number of trade shows and customer-facing events.
Research and Development
Expenses
Research and development expenses increased
by $149, or 24%, in the six months ended June 30, 2019 compared to the same period in 2018 due to increased development headcount
as a result of the Allure Acquisition.
General and Administrative
Expenses
Total general and administrative expenses
increased by $1,070, or 29%, in the six months ended June 30, 2019 compared to the same period in 2018 primarily as a result of
(1) a net increase of $166 in non-recurring, non-cash charges for stock-based compensation expense, primarily driven by $250 from
vesting of previously issued performance restricted stock units (“PRSUs”) during the period partially offset by a reduction
in stock compensation expense recorded from vesting of stock options as several have fully vested in the most recent twelve month
period, (2) $165 of amortized retention bonus expense acquired in the Allure Acquisition, (3) an increase of $273 in rent expense
driven by the additional office from the Allure Acquisition and expanded operations in Louisville, KY, our Corporate headquarters,
(4) $130 cloud migration costs to combine the legacy Allure and CRI cloud hosting environments, and (5) $154 in additional employment-related
costs as a result of the Allure Acquisition.
Depreciation and
Amortization Expenses
Depreciation and amortization expenses decreased
by $57, or 9%, in the six months ended June 30, 2019 compared to the same period in 2018 due to reduced amortization expense related
to intangible assets, partially offset by increased depreciation of property and equipment acquired in the Allure Acquisition.
Although we added intangible assets as a result of the Allure Acquisition, the amortization periods are longer than of those assets
which became fully depreciated in 2018.
Interest Expense
See Note 9 to the condensed consolidated
financial statements for a discussion of the Company’s debt and related interest expense obligations.
Change in Fair
Value of Warrant Liability
See Note 6 to the condensed consolidated
financial statements for a discussion of the Company’s non-cash change in warrant liability for the six months ended June
30, 2019, the methodology for which is consistent for the six months ended June 30, 2019. The change in the fair value of the warrant
liability resulted in a gain in the six months ended June 30, 2019 of $21.
Gain on Settlement
of Obligations
During the six months ended June 30, 2019,
the Company wrote off obligations and recognized a gain of $13.
On August 10, 2017, we announced the planned
closure of our office facilities located at 22 Audrey Place, Fairfield, New Jersey 07004 which housed our previous operations center
and ceased use of the facilities in February 2018. In ceasing use of these facilities, we recorded a one-time non-cash charge of
$474 to accrue for the remaining rent under the lease term, net of anticipated subtenant rental income. Effective June 30, 2018,
we entered a settlement agreement to exit this lease agreement, resulting in the Company reordering a gain on settlement of $39.
Summary Quarterly Financial Information
The following represents unaudited financial
information derived from the Company’s quarterly financial statements:
|
|
|
June 30,
|
|
|
March 31,
|
|
|
December 31,
|
|
|
September 30,
|
|
|
June 30,
|
|
|
Quarters ended
|
|
2019
|
|
|
2019
|
|
|
2018
|
|
|
2018
|
|
|
2018
|
|
|
Net sales
|
|
$
|
9,314
|
|
|
$
|
9,484
|
|
|
$
|
5,229
|
|
|
$
|
6,001
|
|
|
$
|
7,179
|
|
|
Cost of sales
|
|
|
5,086
|
|
|
|
5,803
|
|
|
|
3,346
|
|
|
|
2,260
|
|
|
|
4,089
|
|
|
Gross profit
|
|
|
4,228
|
|
|
|
3,681
|
|
|
|
1,883
|
|
|
|
3,741
|
|
|
|
3,090
|
|
|
Operating expenses, inclusive of one-time lease termination expense, excluding depreciation and amortization
|
|
|
3,425
|
|
|
|
3,360
|
|
|
|
3,827
|
|
|
|
3,919
|
|
|
|
2,773
|
|
|
Depreciation/amortization
|
|
|
308
|
|
|
|
286
|
|
|
|
204
|
|
|
|
330
|
|
|
|
324
|
|
|
Operating income/(loss)
|
|
|
495
|
|
|
|
35
|
|
|
|
(2,148
|
)
|
|
|
(508
|
)
|
|
|
(7
|
)
|
|
Other expenses/(income)
|
|
|
78
|
|
|
|
219
|
|
|
|
4,744
|
|
|
|
370
|
|
|
|
605
|
|
|
Net income/(loss)
|
|
$
|
417
|
|
|
$
|
(184
|
)
|
|
$
|
(6,892
|
)
|
|
$
|
(878
|
)
|
|
$
|
(612
|
)
|
Supplemental Operating Results on a Non-GAAP Basis
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 EBITDA is a performance measure and not a liquidity measure, and therefore a reconciliation
between net loss/income and EBITDA and Adjusted EBITDA has been provided. EBITDA and Adjusted 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
and Adjusted 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 consolidated
financial statements prepared in accordance with GAAP.
|
|
|
June 30,
|
|
|
March 31,
|
|
|
December 31,
|
|
|
September 30,
|
|
|
June 30,
|
|
|
Quarters ended
|
|
2019
|
|
|
2019
|
|
|
2018
|
|
|
2018
|
|
|
2018
|
|
|
GAAP net income/(loss)
|
|
$
|
417
|
|
|
$
|
(184
|
)
|
|
$
|
(6,892
|
)
|
|
$
|
(878
|
)
|
|
$
|
(612
|
)
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of debt discount
|
|
|
158
|
|
|
|
156
|
|
|
|
447
|
|
|
|
415
|
|
|
|
487
|
|
|
Other interest, net
|
|
|
55
|
|
|
|
48
|
|
|
|
145
|
|
|
|
273
|
|
|
|
265
|
|
|
Depreciation/amortization
|
|
|
308
|
|
|
|
286
|
|
|
|
204
|
|
|
|
330
|
|
|
|
324
|
|
|
Income tax expense/(benefit)
|
|
|
(107
|
)
|
|
|
21
|
|
|
|
(214
|
)
|
|
|
(128
|
)
|
|
|
(102
|
)
|
|
EBITDA
|
|
$
|
831
|
|
|
$
|
327
|
|
|
$
|
(6,310
|
)
|
|
$
|
12
|
|
|
$
|
362
|
|
|
Adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in warrant liability
|
|
|
(22
|
)
|
|
|
1
|
|
|
|
(602
|
)
|
|
|
(27
|
)
|
|
|
(11
|
)
|
|
Gain on settlement of obligations
|
|
|
(6
|
)
|
|
|
(7
|
)
|
|
|
(86
|
)
|
|
|
(169
|
)
|
|
|
(39
|
)
|
|
Debt conversion expense
|
|
|
-
|
|
|
|
-
|
|
|
|
5,055
|
|
|
|
-
|
|
|
|
-
|
|
|
Stock-based compensation
|
|
|
291
|
|
|
|
42
|
|
|
|
107
|
|
|
|
1,099
|
|
|
|
113
|
|
|
Severance charges
|
|
|
-
|
|
|
|
-
|
|
|
|
385
|
|
|
|
-
|
|
|
|
-
|
|
|
Deal & transaction costs
|
|
|
-
|
|
|
|
-
|
|
|
|
710
|
|
|
|
-
|
|
|
|
-
|
|
|
Other expense/(income)
|
|
|
-
|
|
|
|
-
|
|
|
|
(1
|
)
|
|
|
6
|
|
|
|
5
|
|
|
Adjusted EBITDA
|
|
$
|
1,094
|
|
|
$
|
363
|
|
|
$
|
(742
|
)
|
|
$
|
921
|
|
|
$
|
430
|
|
Liquidity and Capital Resources
We have incurred net losses for the years
ended December 31, 2018 and 2017 and have negative cash flows from operating activities as of December 31, 2018. For the three
months ended June 30, 2019 and 2018 we have recognized/(incurred) net income/(losses) of $417 and ($612), respectively. For the
six months ended June 30, 2019 and 2018, we recognized/(incurred) net income/(losses) of $233 and ($2,850), respectively. As of
June 30, 2019, we had cash and cash equivalents of $1,824 and working capital deficit of $3,930, which includes $640 representing
current maturities of operating leases brought onto the consolidated balance sheet January 1, 2019 upon adoption of Accounting
Standards Update (“ASU”) 2016-02.
On November 9, 2018, Slipstream Communications,
LLC, (“Slipstream”) a related party (see Note 9), extended the maturity date of our term loan and revolving loan to
August 16, 2020. Our intent is to refinance our term loan and revolving loan with an unrelated third party in the first half of
2019. In conjunction with the extension of the maturity date of our term loan, we agreed that the cash portion of the interest
rate would increase prospectively from 8.0% per annum to 10.0% per annum effective July 1, 2019.
See Note 9 to the Condensed Consolidated
Financial Statements for a discussion of the Company’s debt obligations.
Operating Activities
As of December 31, 2018, we had an accumulated
deficit of ($36,851). The cash flows provided by/(used in) operating activities was ($736) and $2,565 for the six months ended
June 30, 2019 and 2018, respectively. The cash used in operating activities was driven by the Company’s recognition of revenue
from deferred revenue of $5,142 offset by an increase in accrued expenses of approximately $2,000 related to the recognition of
the deferred revenue.
Investing Activities
Net cash used in investing activities during
the six months ended June 30, 2019 was ($172) compared to ($207) during 2018. The use of cash in both periods represents acquisition
of capital assets, primarily related to the capitalization of software costs. We currently do not have any material commitments
for capital expenditures as of June 30, 2019, nor do we anticipate any significant expenditures in 2019.
Financing Activities
Net cash provided by/(used in) financing
activities during the six months ended June 30, 2019 was $14 compared to $2,100 in 2018. The decrease was the result of no proceeds
from related party loans in the six months ended June 30, 2019.
Contractual Obligations
We have no material
commitments for capital expenditures, and we do not anticipate any significant capital expenditures for the remainder of 2019.
Off-Balance Sheet Arrangements
During the six months
ended June 30, 2019, we did not engage in any off-balance sheet arrangements set forth in Item 303(a) (4) of Regulation S-K.