UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Minnesota 41-1967918 State or Other Jurisdiction of Incorporation or Organization I.R.S. Employer Identification No. Title of each class Trading Symbol(s) Name of each exchange on which registered Common Stock, par value $0.01 per share CREX The Nasdaq Stock Market LLC Warrants to purchase Common Stock CREXW The Nasdaq Stock Market LLC FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT ...

Creative Realities, Inc. (NASDAQ:CREX) Q1 2021 Earnings Conference Call May 18, 2021 9:00 AM ET Company Participants Rick Mills - CEO Will Logan - CFO Conference Call Participants Will Logan Good morning. I am Will Logan, Chief Financial Officer of Creative Realities, Inc. Welcome to the CRI’s First Quarter 2021 Financial Results and Earnings Call. All lines have been placed on mute to prevent any background noise. Following the Company’s prepared remarks, there will be a live question-and-answer session. I ...

[PART 1. FINANCIAL INFORMATION](index=3&type=section&id=PART%201.%20FINANCIAL%20INFORMATION) [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements, including balance sheets, operations, cash flows, and equity, with detailed notes [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) 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 position[7](index=7&type=chunk) [Condensed Consolidated Statements of Operations](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) 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 obligations[10](index=10&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) 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 offering[13](index=13&type=chunk) [Consolidated Statements of Shareholders' Equity](index=6&type=section&id=Consolidated%20Statements%20of%20Shareholders%27%20Equity) 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 offering[16](index=16&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=7&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) [NOTE 1: NATURE OF ORGANIZATION AND OPERATIONS](index=7&type=section&id=NOTE%201%3A%20NATURE%20OF%20ORGANIZATION%20AND%20OPERATIONS) 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 technologies[20](index=20&type=chunk) - The company's main operations are conducted through Creative Realities, Inc. and its wholly-owned subsidiaries Allure Global Solutions, Inc. and Creative Realities Canada, Inc[21](index=21&type=chunk) - 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, 2021[23](index=23&type=chunk) - The company's PPP Loan of **$1,552 thousand** was fully forgiven in January 2021, resulting in a gain[24](index=24&type=chunk) - In February 2021, the company completed a registered direct offering, issuing 800,000 shares of common stock for net proceeds of approximately **$1,849 thousand**[25](index=25&type=chunk) - 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 credit[27](index=27&type=chunk) - 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 forecast[28](index=28&type=chunk) [NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES](index=8&type=section&id=NOTE%202%3A%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) 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 results[30](index=30&type=chunk)[31](index=31&type=chunk) - Revenue is recognized following ASC 606, using a five-step model, allocating transaction price to performance obligations based on standalone selling prices[32](index=32&type=chunk)[33](index=33&type=chunk) - Inventories are valued at the lower of cost or market using the FIFO method[39](index=39&type=chunk) - Long-lived assets are reviewed for impairment under ASC 360; no triggering events for impairment were identified as of March 31, 2021[39](index=39&type=chunk) - Basic and diluted EPS are calculated using weighted average common shares outstanding, excluding anti-dilutive options and warrants[43](index=43&type=chunk) - Deferred income taxes are recognized for temporary differences, with a valuation allowance established when necessary; no uncertain tax positions as of March 31, 2021[44](index=44&type=chunk) - Goodwill is tested for impairment annually as of September 30, or when impairment indicators arise[45](index=45&type=chunk) - The company accounts for leases under ASU No. 2016-02 (Topic 842), recognizing ROU assets and liabilities based on the present value of lease payments[47](index=47&type=chunk)[48](index=48&type=chunk) [NOTE 3: RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS](index=11&type=section&id=NOTE%203%3A%20RECENTLY%20ISSUED%20ACCOUNTING%20PRONOUNCEMENTS) 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 statements[52](index=52&type=chunk) - 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, 2022[53](index=53&type=chunk) [NOTE 4: REVENUE RECOGNITION](index=11&type=section&id=NOTE%204%3A%20REVENUE%20RECOGNITION) 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 decreased[54](index=54&type=chunk) - Revenue from system hardware sales is recognized upon shipment or customer acceptance, while installation services revenue is recognized over time based on labor hours completed[55](index=55&type=chunk)[58](index=58&type=chunk) - 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 term[60](index=60&type=chunk)[61](index=61&type=chunk)[63](index=63&type=chunk) [NOTE 5: FAIR VALUE MEASUREMENT](index=13&type=section&id=NOTE%205%3A%20FAIR%20VALUE%20MEASUREMENT) 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 Loan[65](index=65&type=chunk)[66](index=66&type=chunk)[67](index=67&type=chunk) - 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 valuation[68](index=68&type=chunk) [NOTE 6: SUPPLEMENTAL CASH FLOW STATEMENT INFORMATION](index=13&type=section&id=NOTE%206%3A%20SUPPLEMENTAL%20CASH%20FLOW%20STATEMENT%20INFORMATION) 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 year[69](index=69&type=chunk) [NOTE 7: INTANGIBLE ASSETS, INCLUDING GOODWILL](index=13&type=section&id=NOTE%207%3A%20INTANGIBLE%20ASSETS%2C%20INCLUDING%20GOODWILL) This note details the company's intangible assets and goodwill, including their valuation and impairment testing [Intangible Assets](index=13&type=section&id=Intangible%20Assets) 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 statements[70](index=70&type=chunk) [Goodwill](index=15&type=section&id=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, 2021[73](index=73&type=chunk) - 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 pandemic[74](index=74&type=chunk) [NOTE 8: LOANS PAYABLE](index=15&type=section&id=NOTE%208%3A%20LOANS%20PAYABLE) 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](index=15&type=section&id=Loans%20Payable%20Summary) 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 activities[77](index=77&type=chunk) [SBA Paycheck Protection Program Loan](index=17&type=section&id=SBA%20Paycheck%20Protection%20Program%20Loan) - The **$1,552 thousand** PPP Loan, including accrued interest, was fully forgiven on January 11, 2021, resulting in a gain of **$1,552 thousand**[80](index=80&type=chunk) [Amended and Restated Loan and Security Agreement](index=17&type=section&id=Amended%20and%20Restated%20Loan%20and%20Security%20Agreement) - 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 equity[81](index=81&type=chunk) - 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)[82](index=82&type=chunk)[83](index=83&type=chunk) - 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 operations[88](index=88&type=chunk) - A net gain of **$26 thousand** from the extinguishment of the Special Loan was recorded as additional paid-in capital[89](index=89&type=chunk) [Secured Disbursed Escrow Promissory Note](index=19&type=section&id=Secured%20Disbursed%20Escrow%20Promissory%20Note) - 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 refinancing[92](index=92&type=chunk) [Amended and Restated Seller Note from acquisition of Allure](index=19&type=section&id=Amended%20and%20Restated%20Seller%20Note%20from%20acquisition%20of%20Allure) - 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 contract[77](index=77&type=chunk)[95](index=95&type=chunk) - 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 2021[96](index=96&type=chunk) [NOTE 9: COMMITMENTS AND CONTINGENCIES](index=19&type=section&id=NOTE%209%3A%20COMMITMENTS%20AND%20CONTINGENCIES) This note outlines the company's legal proceedings, settlement of obligations, and employee-related expenses [Litigation](index=19&type=section&id=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 failures[97](index=97&type=chunk)[98](index=98&type=chunk) - The outcome and potential liability/recovery for these cases are currently unclear and cannot be reasonably estimated[98](index=98&type=chunk) - 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 2021[101](index=101&type=chunk) [Settlement of obligations](index=20&type=section&id=Settlement%20of%20obligations) - A gain of **$1,552 thousand** was recorded in Q1 2021 due to the full forgiveness of the PPP Loan and accrued interest[103](index=103&type=chunk) [Employee-related Expenses](index=20&type=section&id=Employee-related%20Expenses) - 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 2021[104](index=104&type=chunk) [NOTE 10: RELATED PARTY TRANSACTIONS](index=20&type=section&id=NOTE%2010%3A%20RELATED%20PARTY%20TRANSACTIONS) 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 2021[106](index=106&type=chunk) - 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, 2021[106](index=106&type=chunk) [NOTE 11: INCOME TAXES](index=21&type=section&id=NOTE%2011%3A%20INCOME%20TAXES) 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 losses[108](index=108&type=chunk) - No tax liability was reported for Q1 2021, and net deferred tax assets remained **$0** after valuation allowance, consistent with December 31, 2020[109](index=109&type=chunk) [NOTE 12: WARRANTS](index=21&type=section&id=NOTE%2012%3A%20WARRANTS) 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 reductions[110](index=110&type=chunk) [NOTE 13: STOCK-BASED COMPENSATION](index=21&type=section&id=NOTE%2013%3A%20STOCK-BASED%20COMPENSATION) This note provides details on the company's stock-based compensation plans, including outstanding options, valuation methods, and related expenses [Outstanding Options Summary](index=21&type=section&id=Outstanding%20Options%20Summary) 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, 2021[111](index=111&type=chunk) [Valuation Information for Stock-Based Compensation](index=22&type=section&id=Valuation%20Information%20for%20Stock-Based%20Compensation) - 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-vesting[112](index=112&type=chunk)[113](index=113&type=chunk)[114](index=114&type=chunk) 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 options[114](index=114&type=chunk)[115](index=115&type=chunk) - 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 2021[117](index=117&type=chunk) [Stock Compensation Expense Information](index=23&type=section&id=Stock%20Compensation%20Expense%20Information) - 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 expense[120](index=120&type=chunk) - 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, 2021[121](index=121&type=chunk) [NOTE 14: SIGNIFICANT CUSTOMERS/VENDORS](index=23&type=section&id=NOTE%2014%3A%20SIGNIFICANT%20CUSTOMERS%2FVENDORS) 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, 2020[122](index=122&type=chunk) - 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, respectively[122](index=122&type=chunk) - Three vendors accounted for **48%** of outstanding accounts payable at March 31, 2021, and two vendors for **47%** at December 31, 2020[123](index=123&type=chunk) [NOTE 15: LEASES](index=24&type=section&id=NOTE%2015%3A%20LEASES) 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, 2021[125](index=125&type=chunk)[126](index=126&type=chunk) 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](index=25&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial condition and results of operations for Q1 2021 compared to Q1 2020 [Overview](index=25&type=section&id=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 management[130](index=130&type=chunk) - The company generates revenue through bundled-solution sales, consulting, design, software development, implementation, software license fees, and maintenance/support services[134](index=134&type=chunk) [Recent Developments](index=26&type=section&id=Recent%20Developments) This section highlights recent events impacting the company, including the COVID-19 pandemic, semiconductor shortage, new product launches, and financing activities [COVID-19 Pandemic](index=26&type=section&id=COVID-19%20Pandemic) - 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 2020[136](index=136&type=chunk) - 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 providers[137](index=137&type=chunk) [Semiconductor Chip Shortage](index=26&type=section&id=Semiconductor%20Chip%20Shortage) - 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 margins[139](index=139&type=chunk) [Safe Space Solutions](index=26&type=section&id=Safe%20Space%20Solutions) - 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 2020[140](index=140&type=chunk)[141](index=141&type=chunk) [Registered Direct Offering](index=28&type=section&id=Registered%20Direct%20Offering) - 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 thousand**[144](index=144&type=chunk) [Amended and Restated Credit Agreement](index=28&type=section&id=Amended%20and%20Restated%20Credit%20Agreement) - In March 2021, the company refinanced its debt facilities with Slipstream, extending maturity dates and restructuring existing loans[145](index=145&type=chunk) [Our Sources of Revenue](index=28&type=section&id=Our%20Sources%20of%20Revenue) 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/support[146](index=146&type=chunk) - Sales are primarily driven by internal sales and business development personnel, supplemented by agents, strategic partners, and lead generators[147](index=147&type=chunk) [Our Expenses](index=28&type=section&id=Our%20Expenses) 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](index=148&type=chunk) [Critical Accounting Policies and Estimates](index=28&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) 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 assets[149](index=149&type=chunk) [Results of Operations](index=29&type=section&id=Results%20of%20Operations) 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](index=29&type=section&id=Three%20Months%20Ended%20March%2031%2C%202021%20Compared%20to%20Three%20Months%20Ended%20March%2031%2C%202020) 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](index=29&type=section&id=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 customer[154](index=154&type=chunk) [Gross Profit](index=29&type=section&id=Gross%20Profit) - 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 revenues[155](index=155&type=chunk) [Sales and Marketing Expenses](index=30&type=section&id=Sales%20and%20Marketing%20Expenses) - 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 cancellations[157](index=157&type=chunk) [Research and Development Expenses](index=30&type=section&id=Research%20and%20Development%20Expenses) - Research and development expenses decreased by **$142 thousand** (**45%**) in Q1 2021, resulting from reduced personnel costs and reallocation of resources to revenue-generating activities[158](index=158&type=chunk) [General and Administrative Expenses](index=30&type=section&id=General%20and%20Administrative%20Expenses) - 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 amortization[159](index=159&type=chunk) [Bad Debt](index=30&type=section&id=Bad%20Debt) - Bad debt expenses decreased by **$856 thousand** (**249%**) in Q1 2021, primarily due to a **$555 thousand** cash recovery from a customer bankruptcy[160](index=160&type=chunk) [Depreciation and Amortization Expenses](index=30&type=section&id=Depreciation%20and%20Amortization%20Expenses) - Depreciation and amortization expenses decreased by **$22 thousand** (**6%**) in Q1 2021, as a trade name asset became fully amortized in 2020[161](index=161&type=chunk) [Goodwill impairment](index=30&type=section&id=Goodwill%20impairment) - No goodwill impairment was recorded in Q1 2021, compared to a **$10,646 thousand** non-cash impairment charge in Q1 2020[153](index=153&type=chunk)[162](index=162&type=chunk) [Interest Expense](index=30&type=section&id=Interest%20Expense) - Interest expense increased by **$22 thousand** (**10%**) to **$249 thousand** in Q1 2021[153](index=153&type=chunk) [Change in fair value of convertible loans](index=31&type=section&id=Change%20in%20fair%20value%20of%20convertible%20loans) - 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 2020[165](index=165&type=chunk) [Summary Unaudited Quarterly Financial Information](index=31&type=section&id=Summary%20Unaudited%20Quarterly%20Financial%20Information) 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](index=31&type=section&id=Supplemental%20Operating%20Results%20on%20a%20Non-GAAP%20Basis) 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 periods[169](index=169&type=chunk) [Liquidity and Capital Resources](index=32&type=section&id=Liquidity%20and%20Capital%20Resources) 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 flows[170](index=170&type=chunk) - 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 credit[171](index=171&type=chunk)[172](index=172&type=chunk)[173](index=173&type=chunk) - Management believes these actions, along with operational forecasts, support the company's ability to continue as a going concern through at least June 30, 2022[174](index=174&type=chunk) - The ongoing semiconductor chip shortage poses a risk to liquidity by potentially delaying revenue recognition and increasing costs for digital displays[177](index=177&type=chunk) [Operating Activities](index=33&type=section&id=Operating%20Activities) - 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 gain[178](index=178&type=chunk) - Cash flows were influenced by increases in deferred revenues (**$661 thousand**) and inventories (**$225 thousand**), offset by a **$1,491 thousand** increase in accounts receivable[178](index=178&type=chunk) [Investing Activities](index=33&type=section&id=Investing%20Activities) - 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 development[179](index=179&type=chunk) [Financing Activities](index=33&type=section&id=Financing%20Activities) - 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 offering[180](index=180&type=chunk) [Contractual Obligations](index=33&type=section&id=Contractual%20Obligations) 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 2021[181](index=181&type=chunk) [Off-Balance Sheet Arrangements](index=33&type=section&id=Off-Balance%20Sheet%20Arrangements) 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, 2021[182](index=182&type=chunk) [Item 4. Controls and Procedures](index=33&type=section&id=Item%204.%20Controls%20and%20Procedures) 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](index=33&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of March 31, 2021[183](index=183&type=chunk) [Changes in Internal Control over Financial Reporting](index=34&type=section&id=Changes%20in%20Internal%20Control%20over%20Financial%20Reporting) - 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 reporting[185](index=185&type=chunk) [PART II. OTHER INFORMATION](index=35&type=section&id=PART%20II.%20OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=35&type=section&id=Item%201.%20Legal%20Proceedings) 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 item[188](index=188&type=chunk) [Item 1A. Risk Factors](index=35&type=section&id=Item%201A.%20Risk%20Factors) 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 margins[190](index=190&type=chunk)[191](index=191&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=35&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) 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 reported[192](index=192&type=chunk) [Item 3. Defaults Upon Senior Securities](index=35&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This section confirms that there were no defaults upon senior securities - No defaults upon senior securities are reported[193](index=193&type=chunk) [Item 4. Mine Safety Disclosures](index=35&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section states that mine safety disclosures are not applicable to the company - Mine safety disclosures are not applicable[194](index=194&type=chunk) [Item 5. Other Information](index=35&type=section&id=Item%205.%20Other%20Information) 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 2021[195](index=195&type=chunk)[196](index=196&type=chunk) [Item 6. Exhibits](index=36&type=section&id=Item%206.%20Exhibits) 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 documents[198](index=198&type=chunk) [SIGNATURES](index=37&type=section&id=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, 2021[202](index=202&type=chunk)

Creative Realities, Inc. (NASDAQ:CREX) Q4 2020 Earnings Conference Call March 10, 2021 9:00 AM ET Company Participants Rick Mills - Chief Executive Officer Will Logan - Chief Financial Officer Will Logan Welcome to the CRI 2020 Financial Results and Earnings Call. All lines have been placed on mute to prevent any background noise. The company’s prepared remarks will include a brief presentation of company materials, which can be viewed during this webcast through the webinar by joining joinwebinar.com and e ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-K (Mark one) ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2020 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________ to ___________ Commission file number 001-33169 Creative Realities, Inc. (Exact name of registrant as specified in its charter) Minnesota 41-1967918 Stat ...

Creative Realities Inc (NASDAQ:CREX) Q3 2020 Earnings Conference Call November 13, 2020 9:00 AM ET Company Participants Will Logan - Chief Financial Officer Rick Mills - Chief Executive Officer Conference Call Participants Will Logan Apologies all. There were some technical difficulties with our initial webcast. We will begin the call now. Good morning and welcome to the Creative Realities Third Quarter 2020 Earnings Call. All lines have been placed on mute to prevent any background noise. After the company ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2020 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________ to ___________ Commission File Number 001-33169 | --- | |----------------------------------------| | | | Minnesota | | State or Other Jurisdic ...

Creative Realities Inc (NASDAQ:CREX) Q2 2020 Earnings Conference Call August 14, 2020 9:00 AM ET Company Participants Rick Mills - Chief Executive Officer Will Logan - Chief Financial Officer Will Logan Good morning and welcome to the Creative Realities Second Quarter 2020 Earnings Call. All lines have been placed on mute to prevent any background noise. After the company’s remarks, there will be a question-and-answer session. [Operator Instructions] Alternatively, questions can be submitted during the call ...

PART 1. FINANCIAL INFORMATION This section presents the company's unaudited condensed consolidated financial statements and management's discussion and analysis. [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements, including balance sheets, statements of operations, cash flows, and shareholders' equity, along with detailed notes explaining the company's accounting policies, financial condition, and specific transactions for the periods ended June 30, 2020 and 2019. [Condensed Consolidated Balance Sheets](index=3&type=section&id=CONDENSED%20CONSOLIDATED%20BALANCE%20SHEETS) This section presents the company's financial position, including assets, liabilities, and shareholders' equity, as of June 30, 2020, and December 31, 2019. Condensed Consolidated Balance Sheets (in thousands) | Item | June 30, 2020 | December 31, 2019 | Change (2020 vs 2019) | | :---------------------------------- | :------------ | :---------------- | :-------------------- | | Total Assets | $21,786 | $33,976 | -$12,190 | | Total Current Assets | $7,031 | $7,982 | -$951 | | Goodwill | $7,525 | $18,171 | -$10,646 | | Total Liabilities | $18,630 | $15,468 | +$3,162 | | Total Current Liabilities | $16,242 | $10,431 | +$5,811 | | Total Shareholders' Equity | $3,156 | $18,508 | -$15,352 | - Total assets decreased significantly by **$12,190 thousand**, primarily driven by a **$10,646 thousand** reduction in goodwill due to impairment[6](index=6&type=chunk) - Total liabilities increased by **$3,162 thousand**, with current liabilities seeing a substantial increase of **$5,811 thousand**, indicating a shift towards shorter-term obligations[6](index=6&type=chunk) - Shareholders' equity decreased by **$15,352 thousand**, largely due to the accumulated deficit increasing from **$(35,642) thousand** to **$(51,284) thousand**[6](index=6&type=chunk) [Condensed Consolidated Statements of Operations](index=4&type=section&id=CONDENSED%20CONSOLIDATED%20STATEMENTS%20OF%20OPERATIONS) This section details the company's revenues, expenses, and net income or loss for the three and six months ended June 30, 2020, and 2019. Condensed Consolidated Statements of Operations (in thousands, except per share amounts) | Item | 3 Months Ended June 30, 2020 | 3 Months Ended June 30, 2019 | Change (YoY) | 6 Months Ended June 30, 2020 | 6 Months Ended June 30, 2019 | Change (YoY) | | :-------------------------------------- | :--------------------------- | :--------------------------- | :----------- | :--------------------------- | :--------------------------- | :----------- | | Total Sales | $3,656 | $9,314 | -60.7% | $7,360 | $18,798 | -60.9% | | Gross Profit | $1,817 | $4,228 | -57.0% | $3,424 | $7,909 | -56.7% | | Operating Income/(Loss) | $(1,644) | $495 | -432.1% | $(14,645) | $530 | -2863.2% | | Net Income/(Loss) | $(2,459) | $417 | -690.2% | $(15,642) | $233 | -6813.3% | | Basic EPS | $(0.25) | $0.04 | -725.0% | $(1.59) | $0.02 | -8050.0% | | Diluted EPS | $(0.25) | $0.04 | -725.0% | $(1.59) | $0.02 | -8050.0% | - Total sales decreased by approximately **61%** for both the three and six months ended June 30, 2020, primarily due to the non-recurrence of significant software license revenue from 2019 and reduced demand from the COVID-19 pandemic[8](index=8&type=chunk)[176](index=176&type=chunk)[187](index=187&type=chunk) - The company reported substantial net losses of **$(2,459) thousand** and **$(15,642) thousand** for the three and six months ended June 30, 2020, respectively, a significant decline from net incomes in the prior year periods, largely impacted by a goodwill impairment charge of **$10,646 thousand**[8](index=8&type=chunk)[91](index=91&type=chunk)[186](index=186&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=5&type=section&id=CONDENSED%20CONSOLIDATED%20STATEMENTS%20OF%20CASH%20FLOWS) This section outlines the company's cash inflows and outflows from operating, investing, and financing activities for the six months ended June 30, 2020, and 2019. Condensed Consolidated Statements of Cash Flows (in thousands) | Activity | 6 Months Ended June 30, 2020 | 6 Months Ended June 30, 2019 | Change (YoY) | | :-------------------------------- | :--------------------------- | :--------------------------- | :----------- | | Net Cash Used in Operating Activities | $(2,915) | $(736) | -296.0% | | Net Cash Used in Investing Activities | $(408) | $(172) | -137.2% | | Net Cash Provided by Financing Activities | $1,659 | $14 | +11750.0% | | Increase/(Decrease) in Cash and Cash Equivalents | $(1,664) | $(894) | -86.1% | | Cash and Cash Equivalents, End of Period | $870 | $1,824 | -52.3% | - Net cash used in operating activities increased significantly to **$(2,915) thousand** for the six months ended June 30, 2020, primarily due to the net loss and increased inventory, partially offset by non-cash charges and improved collections[12](index=12&type=chunk)[215](index=215&type=chunk) - Net cash provided by financing activities saw a substantial increase to **$1,659 thousand**, driven by a **$1,552 thousand** Paycheck Protection Program loan and warrant exercises[12](index=12&type=chunk)[218](index=218&type=chunk) [Consolidated Statements of Shareholders' Equity](index=6&type=section&id=CONSOLIDATED%20STATEMENTS%20OF%20SHAREHOLDERS'%20EQUITY) This section presents changes in the company's shareholders' equity, including common stock, additional paid-in capital, and accumulated deficit, for the six months ended June 30, 2020. Consolidated Statements of Shareholders' Equity (in thousands, except shares) | Item | Balance as of Dec 31, 2019 | 6 Months Ended June 30, 2020 | Balance as of June 30, 2020 | | :-------------------------------- | :------------------------- | :--------------------------- | :-------------------------- | | Common Shares Outstanding | 9,774,546 | +79,977 | 9,854,623 | | Common Stock Amount | $98 | $0 | $98 | | Additional Paid-in Capital | $54,052 | +$290 | $54,342 | | Accumulated Deficit | $(35,642) | $(15,642) | $(51,284) | | Total Shareholders' Equity | $18,508 | $(15,352) | $3,156 | - Total shareholders' equity decreased significantly by **$15,352 thousand** from December 31, 2019, to June 30, 2020, primarily due to a net loss of **$(15,642) thousand**[14](index=14&type=chunk) - Additional paid-in capital increased by **$290 thousand**, driven by stock-based compensation, shares issued to directors, and warrant exercises[14](index=14&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=7&type=section&id=NOTES%20TO%20CONDENSED%20CONSOLIDATED%20FINANCIAL%20STATEMENTS) This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements. [NOTE 1: Nature of Organization and Operations](index=7&type=section&id=NOTE%201:%20NATURE%20OF%20ORGANIZATION%20AND%20OPERATIONS) This note describes the company's core business in digital marketing technology, the impact of the COVID-19 pandemic on its operations and financial condition, and recent efforts to secure liquidity through capital markets and government programs. - Creative Realities, Inc. provides digital marketing technology and solutions to retail companies and organizations, with expertise in various digital marketing technologies and related software platforms[18](index=18&type=chunk) - The company experienced rapid and immediate deterioration in its short-term business due to the COVID-19 pandemic, leading to reduced demand, delayed projects, and slowed cash flows, particularly in theater, sports arena, and large entertainment markets[24](index=24&type=chunk)[158](index=158&type=chunk)[202](index=202&type=chunk) - To address liquidity concerns, the company implemented cost-cutting measures, launched a new AI-integrated non-contact temperature inspection kiosk (Thermal Mirror), secured a **$1,552 thousand** Paycheck Protection Program loan, and entered into a sales agreement with Roth Capital Partners for up to **$8,000 thousand** in common stock sales[25](index=25&type=chunk)[26](index=26&type=chunk)[28](index=28&type=chunk)[31](index=31&type=chunk)[160](index=160&type=chunk)[162](index=162&type=chunk)[165](index=165&type=chunk)[204](index=204&type=chunk)[205](index=205&type=chunk)[208](index=208&type=chunk) [NOTE 2: Summary of Significant Accounting Policies](index=11&type=section&id=NOTE%202:%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) This note outlines the significant accounting policies applied in preparing the condensed consolidated financial statements, including revenue recognition, inventory valuation, impairment of long-lived assets, income taxes, goodwill, use of estimates, and lease accounting. - Revenue is recognized in accordance with ASC 606, applying a five-step model, allocating transaction price to performance obligations based on standalone selling prices, and recognizing revenue when control of goods or services is transferred[42](index=42&type=chunk)[44](index=44&type=chunk)[46](index=46&type=chunk) - Inventories are stated at the lower of cost or market (net realizable value) using the first-in, first-out (FIFO) method, consisting of raw materials, inventory on consignment, and work-in-process[49](index=49&type=chunk)[50](index=50&type=chunk) - The company accounts for leases under ASU No. 2016-02 (Topic 842), recognizing Right-of-Use (ROU) assets and liabilities at commencement based on the present value of remaining lease payments, using the incremental borrowing rate[57](index=57&type=chunk)[58](index=58&type=chunk) [NOTE 3: Recently Issued Accounting Pronouncements](index=14&type=section&id=NOTE%203:%20RECENTLY%20ISSUED%20ACCOUNTING%20PRONOUNCEMENTS) This note details the recently adopted and not yet adopted accounting pronouncements, including ASU 2018-15 and ASU 2018-13, which had no material impact, and ASU 2019-12 and ASU 2016-13, which are currently being evaluated for future impact. - The company adopted ASU 2018-15 (Cloud Computing Arrangement Costs) and ASU 2018-13 (Fair Value Measurement Disclosures) on January 1, 2020, with no material impact on its financial statements[61](index=61&type=chunk)[62](index=62&type=chunk) - The company is currently evaluating the impact of ASU 2019-12 (Simplifying Income Taxes), effective in Q1 2021, and ASU No. 2016-13 (Financial Instruments—Credit Losses), effective after December 15, 2022[63](index=63&type=chunk)[64](index=64&type=chunk) [NOTE 4: Revenue Recognition (Detailed)](index=14&type=section&id=NOTE%204:%20REVENUE%20RECOGNITION) This note disaggregates the company's revenue by major source, including hardware sales, installation services, software development, software as a service, and maintenance and support services, detailing their recognition methods. Revenue by Major Source (in thousands) | Revenue Source | 3 Months Ended June 30, 2020 | 3 Months Ended June 30, 2019 | 6 Months Ended June 30, 2020 | 6 Months Ended June 30, 2019 | | :-------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Hardware | $1,601 | $1,654 | $2,968 | $3,295 | | Installation Services | $463 | $1,791 | $1,332 | $4,163 | | Software Development Services | $37 | $4,259 | $179 | $8,235 | | Managed Services | $1,555 | $1,610 | $2,881 | $3,105 | | **Total Sales** | **$3,656** | **$9,314** | **$7,360** | **$18,798** | - Software Development Services revenue experienced a drastic decline, from **$4,259 thousand** to **$37 thousand** for the three months ended June 30, 2020, and from **$8,235 thousand** to **$179 thousand** for the six months ended June 30, 2020[65](index=65&type=chunk) - Installation Services revenue also significantly decreased, from **$1,791 thousand** to **$463 thousand** for the three months, and from **$4,163 thousand** to **$1,332 thousand** for the six months ended June 30, 2020[65](index=65&type=chunk) [NOTE 5: Fair Value Measurement](index=16&type=section&id=NOTE%205:%20FAIR%20VALUE%20MEASUREMENT) This note explains the company's fair value measurement hierarchy (Level 1, 2, 3) and its application to financial assets and liabilities, specifically detailing the valuation of warrant liabilities, earnout liabilities, and the Special Loan. - The company uses a three-level hierarchy for fair value measurements, with Level 3 valuations based on unobservable inputs and management judgment[77](index=77&type=chunk)[78](index=78&type=chunk)[83](index=83&type=chunk) - The fair value of warrant liabilities decreased to **$0** as of June 30, 2019, as all outstanding warrants classified as liabilities expired[79](index=79&type=chunk) - A **$551 thousand** and **$702 thousand** loss was recognized for the three and six months ended June 30, 2020, respectively, from the change in fair value of the Special Loan, which is a Level 3 liability[81](index=81&type=chunk) [NOTE 6: Supplemental Cash Flow Statement Information](index=16&type=section&id=NOTE%206:%20SUPPLEMENTAL%20CASH%20FLOW%20STATEMENT%20INFORMATION) This note provides supplemental cash flow information, including non-cash investing and financing activities and cash paid for interest and income taxes. Supplemental Cash Flow Information (in thousands) | Item | 6 Months Ended June 30, 2020 | 6 Months Ended June 30, 2019 | | :------------------------------------------------ | :--------------------------- | :--------------------------- | | Cash paid for Interest | $0 | $181 | | Cash paid for Income taxes, net | $2 | $0 | | Right of offset settlement of Amended and Restated Seller Note | $0 | $498 | - Cash paid for interest decreased significantly from **$181 thousand** in 2019 to **$0** in 2020 for the six-month period, reflecting changes in loan payment terms[82](index=82&type=chunk) [NOTE 7: Intangible Assets, Including Goodwill](index=17&type=section&id=NOTE%207:%20INTANGIBLE%20ASSETS,%20INCLUDING%20GOODWILL) This note details the company's intangible assets and goodwill, including their carrying amounts, amortization, and the significant goodwill impairment loss recognized due to the COVID-19 pandemic's impact on cash flow projections. Intangible Assets (in thousands) | Item | June 30, 2020 Net Book Value | December 31, 2019 Net Book Value | | :---------------------------------- | :--------------------------- | :--------------------------- | | Technology platform | $1,362 | $1,488 | | Customer relationships | $2,555 | $2,651 | | Trademarks and trade names | $173 | $268 | | **Total Net Book Value** | **$4,090** | **$4,407** | Goodwill (in thousands) | Item | Amount | | :---------------------------------- | :------- | | Balance as of December 31, 2019 | $18,171 | | Adjustments due to impairment loss | $(10,646) | | Balance as of June 30, 2020 | $7,525 | - A non-cash goodwill impairment loss of **$10,646 thousand** was recorded during the three months ended March 31, 2020, due to reduced cash flow projections and a significant decline in market capitalization resulting from the COVID-19 pandemic[87](index=87&type=chunk)[91](index=91&type=chunk) - The fair value of the reporting unit was estimated using the income approach with a discount rate of **15.3%** as of March 31, 2020[90](index=90&type=chunk) [NOTE 8: Loans Payable](index=18&type=section&id=NOTE%208:%20LOANS%20PAYABLE) This note provides a detailed breakdown of the company's various loan obligations, including the Paycheck Protection Program loan, the Loan and Security Agreement with Slipstream, and amendments that modified interest rates and conversion terms, as well as the disputed Amended and Restated Seller Note. Outstanding Debt (in thousands) | Debt Type | Principal (June 30, 2020) | Maturity Date | Interest Rate | | :------------------------------------------------ | :------------------------ | :------------ | :------------ | | Secured Disbursed Escrow Promissory Note | $264 | 6/30/2021 | 0.0% | | Secured Revolving Promissory Note | $1,032 | 6/30/2021 | 10.0% | | Term Loan | $3,096 | 6/30/2021 | 10.0% | | Amended and Restated Seller Note | $1,637 | 2/15/2020 | 3.5% | | Secured Convertible Special Loan Promissory Note | $2,773 | 6/30/2021 (Mandatory conversion by 10/1/2020) | 10.0% | | Paycheck Protection Program Loan | $1,552 | 4/27/2022 | 1.0% | | **Total Debt, Gross** | **$10,354** | | | - The company received a **$1,552 thousand** unsecured loan under the Paycheck Protection Program (PPP) on April 27, 2020, with a **1%** interest rate and potential for forgiveness[31](index=31&type=chunk)[100](index=100&type=chunk) - The Eighth Amendment to the Loan and Security Agreement, effective April 1, 2020, increased interest rates on Term, Revolving, and Special Loans from **8%** to **10%**, with interest on term and revolving loans payable in-kind until January 1, 2021, and special loan interest payable in-kind indefinitely[37](index=37&type=chunk)[103](index=103&type=chunk) - The Amended and Restated Seller Note of **$1,637 thousand**, due February 20, 2020, remains unpaid due to an arbitration demand filed by the company against the seller for breach of contract and fraudulent misrepresentation[95](index=95&type=chunk)[114](index=114&type=chunk)[118](index=118&type=chunk) [NOTE 9: Commitments and Contingencies](index=23&type=section&id=NOTE%209:%20COMMITMENTS%20AND%20CONTINGENCIES) This note outlines the company's legal proceedings, including lawsuits against a supplier and by a customer related to equipment installations, and details employee-related cost-cutting measures implemented in response to the COVID-19 pandemic. - The company is involved in litigation, including a suit filed against a supplier for breach of contract and a demand from an Allure customer for **$3,200 thousand** related to alleged hardware failures, with outcomes currently unclear[115](index=115&type=chunk)[116](index=116&type=chunk) - In response to COVID-19, the company implemented cost-control measures, including a **20%** salary reduction for its CEO and CFO for six months and a reduction-in-force resulting in **$135 thousand** in one-time termination benefits paid during Q2 2020[120](index=120&type=chunk)[122](index=122&type=chunk) [NOTE 10: Related Party Transactions](index=24&type=section&id=NOTE%2010:%20RELATED%20PARTY%20TRANSACTIONS) This note discloses transactions with 33 Degrees Convenience Connect, Inc., a related party, including sales of hardware and services and outstanding accounts receivable. Sales to 33 Degrees (Related Party) (in thousands) | Period | Sales to 33 Degrees | % of Consolidated Revenue | | :--------------------------- | :------------------ | :------------------------ | | 3 Months Ended June 30, 2020 | $291 | 8.0% | | 3 Months Ended June 30, 2019 | $275 | 3.0% | | 6 Months Ended June 30, 2020 | $791 | 10.7% | | 6 Months Ended June 30, 2019 | $470 | 2.5% | Accounts Receivable from 33 Degrees (in thousands) | Date | Accounts Receivable | % of Consolidated Accounts Receivable | | :--------------------------- | :------------------ | :------------------------------------ | | June 30, 2020 | $28 | 0.8% | | December 31, 2019 | $1 | 0.0% | - Sales to 33 Degrees, a related party, increased significantly as a percentage of consolidated revenue, reaching **8.0%** for the three months and **10.7%** for the six months ended June 30, 2020[125](index=125&type=chunk) [NOTE 11: Income Taxes](index=24&type=section&id=NOTE%2011:%20INCOME%20TAXES) This note discusses the company's deferred tax assets, primarily related to net operating loss (NOL) carryforwards, and the application of a full valuation allowance due to a history of losses and the impact of goodwill impairment. - The company has substantial net operating loss (NOL) carryforwards, but their usage is limited by IRC Section 382[127](index=127&type=chunk) - A full valuation allowance is maintained against the net deferred tax assets due to the company's history of losses[127](index=127&type=chunk) - The net deferred tax assets totaled **$0** as of June 30, 2020, after a valuation allowance, a reduction from **$175 thousand** at December 31, 2019, primarily due to the goodwill impairment adjusting the deferred tax impact[128](index=128&type=chunk) [NOTE 12: Warrants](index=24&type=section&id=NOTE%2012:%20WARRANTS) This note provides a summary of the company's outstanding equity warrants, including their number, weighted average exercise price, and remaining contractual life. Summary of Outstanding Equity Warrants | Item | Number of Warrants | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life | | :-------------------------- | :----------------- | :------------------------------ | :---------------------------------------- | | Balance January 1, 2020 | 4,733,028 | $4.83 | 3.41 years | | Warrants issued | (27,600) | $4.38 | - | | Warrants expired | (89,238) | $9.49 | - | | **Balance June 30, 2020** | **4,616,190** | **$4.74** | **2.97 years** | - The number of outstanding warrants decreased from **4,733,028** at January 1, 2020, to **4,616,190** at June 30, 2020, due to expirations and exercises[129](index=129&type=chunk) [NOTE 13: Stock-Based Compensation](index=25&type=section&id=NOTE%2013:%20STOCK-BASED%20COMPENSATION) This note details the company's stock-based compensation plans, including the granting of time-vesting and performance-vesting options, their valuation using the Black-Scholes model, and the associated compensation expense recognized. Summary of Outstanding Options (June 30, 2020) | Option Type | Number Outstanding | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life | | :-------------------------- | :----------------- | :------------------------------ | :---------------------------------------- | | Time Vesting Options | 1,893,809 | $3.44 | 9.25 years | | Performance Vesting Options | 800,000 | $2.53 | 9.93 years | Stock-Based Compensation Expense (in thousands) | Period | Amount | | :--------------------------- | :----- | | 3 Months Ended June 30, 2020 | $19 | | 6 Months Ended June 30, 2020 | $119 | | 3 Months Ended June 30, 2019 | $41 | | 6 Months Ended June 30, 2019 | $83 | - On June 1, 2020, the company granted **2,380,000** options, including **1,580,000** time-vesting options and **800,000** performance-vesting options, with an exercise price of **$2.53** and a fair value of **$1.87** per option, valued using the Black-Scholes model[134](index=134&type=chunk)[135](index=135&type=chunk)[137](index=137&type=chunk)[138](index=138&type=chunk) - As of June 30, 2020, there was **$3,014 thousand** of unrecognized compensation expense for time-vesting awards and **$1,499 thousand** for performance-vesting awards, with performance-based expense recognized only if targets are probable[141](index=141&type=chunk) [NOTE 14: Significant Customers/Vendors](index=26&type=section&id=NOTE%2014:%20SIGNIFICANT%20CUSTOMERS/VENDORS) This note highlights the company's concentration risk by identifying significant customers and vendors that account for a material portion of accounts receivable, revenue, and accounts payable. Significant Customers (Revenue Concentration) | Period | Number of Customers | % of Revenue | | :--------------------------- | :------------------ | :----------- | | 3 Months Ended June 30, 2020 | 2 | 27% | | 3 Months Ended June 30, 2019 | 2 | 51% | | 6 Months Ended June 30, 2020 | 2 | 22% | | 6 Months Ended June 30, 2019 | 2 | 41% | Significant Vendors (Accounts Payable Concentration) | Date | Number of Vendors | % of Outstanding Accounts Payable | | :--------------------------- | :------------------ | :-------------------------------- | | June 30, 2020 | 1 | 22% | | December 31, 2019 | 1 | 50% | - Revenue concentration with two significant customers decreased from **51%** to **27%** for the three months ended June 30, 2020, and from **41%** to **22%** for the six months ended June 30, 2020[142](index=142&type=chunk) - One vendor accounted for **22%** of outstanding accounts payable at June 30, 2020, a decrease from **50%** at December 31, 2019[144](index=144&type=chunk) [NOTE 15: Leases](index=28&type=section&id=NOTE%2015:%20LEASES) This note provides details on the company's operating and finance lease agreements, including lease costs, weighted average remaining lease terms, discount rates, and a schedule of lease liability maturities. Lease Costs (in thousands) | Lease Type | 6 Months Ended June 30, 2020 | 6 Months Ended June 30, 2019 | | :-------------------------- | :--------------------------- | :--------------------------- | | Finance lease cost | $13 | $19 | | Operating lease cost | $343 | $393 | | **Total Lease Cost** | **$356** | **$412** | Weighted Average Lease Terms and Discount Rates (June 30, 2020) | Lease Type | Remaining Lease Term | Discount Rate | | :-------------------------- | :------------------- | :------------ | | Operating leases | 3.0 years | 10.0% | | Finance leases | 1.0 years | 14.0% | Maturities of Lease Liabilities (in thousands, June 30, 2020) | Period | Operating Leases | Finance Leases | | :-------------------------- | :--------------- | :------------- | | Remainder of 2020 | $342 | $9 | | 2021 | $630 | $4 | | 2022 | $377 | $1 | | 2023 | $375 | $0 | | Thereafter | $0 | $0 | | **Total Undiscounted Cash Flows** | **$1,724** | **$14** | | Present Value of Lease Liabilities | $1,487 | $13 | - Total lease costs decreased from **$412 thousand** in the first six months of 2019 to **$356 thousand** in the same period of 2020[147](index=147&type=chunk) - The weighted average remaining lease term for operating leases is **3.0 years** with a **10.0%** discount rate, while finance leases have a **1.0-year** term with a **14.0%** discount rate as of June 30, 2020[147](index=147&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=29&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial condition and results of operations, including an overview of its business, recent developments, detailed analysis of revenue and expenses, and a discussion of liquidity and capital resources, with a focus on the impact of the COVID-19 pandemic. [Forward-Looking Statements](index=29&type=section&id=Forward-Looking%20Statements) This section cautions readers that the report contains forward-looking statements subject to risks and uncertainties that may cause actual results to differ. - The discussion contains forward-looking statements subject to numerous risks and uncertainties that could cause actual results to differ materially from projections, as detailed in the company's SEC filings[149](index=149&type=chunk)[150](index=150&type=chunk) [Overview](index=29&type=section&id=Overview) This section provides a general description of the company's business, its digital marketing technology solutions, and its revenue generation model. - Creative Realities, Inc. specializes in innovative digital marketing technology solutions for various industries, offering expertise in digital merchandising, omni-channel customer engagement, content management, and interactive marketing technologies[151](index=151&type=chunk) - The company generates revenue through bundled-solution sales, consulting, design, software development, engineering, implementation, field services, software license fees, and maintenance and support services[156](index=156&type=chunk) [Recent Developments](index=30&type=section&id=Recent%20Developments) This section highlights key events and changes impacting the company, including the COVID-19 pandemic's effects and liquidity initiatives. - The COVID-19 pandemic caused a rapid and immediate deterioration in business, leading to reduced demand, delayed customer orders, and a **$10,646 thousand** non-cash goodwill impairment loss as of March 31, 2020[158](index=158&type=chunk) - The company jointly launched the AI-integrated Thermal Mirror kiosk with InReality on April 28, 2020, as a new product for businesses adapting to COVID-19 workplace restrictions[160](index=160&type=chunk) - To enhance liquidity, the company entered into a Sales Agreement with Roth Capital Partners on June 19, 2020, to sell up to **$8,000 thousand** of common stock through an at-the-market offering, and secured a **$1,552 thousand** Paycheck Protection Program loan on April 27, 2020[162](index=162&type=chunk)[165](index=165&type=chunk) [Our Sources of Revenue](index=31&type=section&id=Our%20Sources%20of%20Revenue) This section describes the various ways the company generates revenue, including hardware sales, services, and software licensing. - Revenue is generated from digital marketing solution sales, including system hardware, professional and implementation services, software design and development, software licensing, deployment, and maintenance and support services[168](index=168&type=chunk) - The company markets and sells its solutions primarily through its sales and business development personnel, supplemented by agents, strategic partners, and lead generators[169](index=169&type=chunk) [Our Expenses](index=32&type=section&id=Our%20Expenses) This section categorizes and explains the company's primary operating expenses, such as sales and marketing, research and development, and general and administrative costs. - Expenses are categorized into sales and marketing (salaries, commissions, promotional activities), research and development (salaries for software development), and general and administrative (corporate overhead, administrative salaries, legal, and accounting fees)[170](index=170&type=chunk) [Critical Accounting Policies and Estimates](index=32&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) This section discusses the significant accounting policies and estimates that require management judgment and can materially affect the financial statements. - The company's financial statements are prepared in conformity with GAAP, requiring significant judgments, assumptions, and estimates that could materially impact asset and liability carrying values, and reported revenues and expenses[171](index=171&type=chunk) [Results of Operations](index=32&type=section&id=Results%20of%20Operations) This section provides a comparative analysis of the company's financial performance for the periods presented, detailing revenue, gross profit, and net income changes. [Three Months Ended June 30, 2020 Compared to Three Months Ended June 30, 2019](index=32&type=section&id=Three%20Months%20Ended%20June%2030,%202020%20Compared%20to%20Three%20Months%20Ended%20June%2030,%202019) For the three months ended June 30, 2020, the company experienced a significant decline in sales and gross profit, leading to an operating loss, primarily due to the non-recurrence of a large software license transaction in 2019 and reduced business activity from the COVID-19 pandemic. Financial Performance (3 Months Ended June 30, in thousands) | Item | 2020 | 2019 | Change ($) | Change (%) | | :-------------------------------------- | :--- | :--- | :--------- | :--------- | | Sales | $3,656 | $9,314 | $(5,658) | -61% | | Gross Profit | $1,817 | $4,228 | $(2,411) | -57% | | Operating Income/(Loss) | $(1,644) | $495 | $(2,139) | -432% | | Net Income/(Loss) | $(2,459) | $417 | $(2,876) | -690% | | Sales and Marketing Expenses | $371 | $610 | $(239) | -39% | | Research and Development Expenses | $245 | $394 | $(149) | -38% | | General and Administrative Expenses | $2,465 | $2,421 | $44 | 2% | | Depreciation and Amortization Expense | $380 | $308 | $72 | 23% | | Change in fair value of Special Loan | $(551) | $0 | $(551) | -100% | - Sales decreased by **$5,658 thousand (61%)** due to the non-recurrence of a **$3,797 thousand** software license revenue from 2019 and a general reduction in sales and installation activity caused by the COVID-19 pandemic[176](index=176&type=chunk) - Gross profit decreased by **$2,411 thousand (57%)**, despite an increase in gross profit margin to **49.7%** (from **45.4%**), driven by higher services revenue margin percentage (**73.6%** from **50.7%**) and a shift in sales mix towards hardware[177](index=177&type=chunk) - General and administrative expenses increased by **$44 thousand (2%)**, primarily due to a **$468 thousand** incremental reserve for bad debts, partially offset by a **$647 thousand** reduction in employee-related expenses from cost-cutting measures[180](index=180&type=chunk) [Six Months Ended June 30, 2020 Compared to Six Months Ended June 30, 2019](index=34&type=section&id=Six%20Months%20Ended%20June%2030,%202020%20Compared%20to%20Six%20Months%20Ended%20June%2030,%202019) For the six months ended June 30, 2020, the company reported a substantial net loss and operating loss, driven by a significant decline in sales, a goodwill impairment charge, and increased bad debt expenses, largely attributable to the COVID-19 pandemic's impact. Financial Performance (6 Months Ended June 30, in thousands) | Item | 2020 | 2019 | Change ($) | Change (%) | | :-------------------------------------- | :--- | :--- | :--------- | :--------- | | Sales | $7,360 | $18,798 | $(11,438) | -61% | | Gross Profit | $3,424 | $7,909 | $(4,485) | -57% | | Operating Income/(Loss) | $(14,645) | $530 | $(15,175) | -2863% | | Net Income/(Loss) | $(15,642) | $233 | $(15,875) | -6813% | | Goodwill Impairment | $10,646 | $0 | $10,646 | 100% | | General and Administrative Expenses | $5,321 | $4,711 | $610 | 13% | | Change in fair value of Special Loan | $(702) | $0 | $(702) | -100% | - Sales decreased by **$11,438 thousand (61%)** due to the non-recurrence of **$5,671 thousand** in software license revenue and a **$2,083 thousand** software development project from 2019, coupled with reduced activity from the COVID-19 pandemic[187](index=187&type=chunk) - Gross profit decreased by **$4,485 thousand (57%)**, despite an increase in gross profit margin to **46.5%** (from **42.1%**), driven by improved hardware and services margins and a shift in sales mix[188](index=188&type=chunk) - General and administrative expenses increased by **$610 thousand (13%)**, primarily due to a **$750 thousand** incremental reserve for bad debts and **$200 thousand** in legal/accounting costs, partially offset by **$614 thousand** in employee-related expense reductions[191](index=191&type=chunk) [Summary Unaudited Quarterly Financial Information](index=36&type=section&id=Summary%20Unaudited%20Quarterly%20Financial%20Information) This section presents a condensed overview of the company's unaudited financial performance across recent quarters. Unaudited Quarterly Financial Information (in thousands) | Quarter Ended | June 30, 2020 | March 31, 2020 | December 31, 2019 | September 30, 2019 | June 30, 2019 | | :---------------------------------------------------------------------------------------------------------------- | :------------ | :------------- | :---------------- | :----------------- | :------------ | | Net Sales | $3,656 | $3,704 | $6,077 | $6,723 | $9,314 | | Gross Profit | $1,817 | $1,607 | $2,524 | $3,306 | $4,228 | | Operating (Loss)/Income | $(1,644) | $(13,001) | $(726) | $86 | $495 | | Net (Loss)/Income | $(2,459) | $(13,183) | $563 | $242 | $417 | | Goodwill Impairment | $0 | $10,646 | $0 | $0 | $0 | - Net sales consistently declined from **$9,314 thousand** in Q2 2019 to **$3,656 thousand** in Q2 2020[196](index=196&type=chunk) - The company reported significant net losses in Q1 and Q2 2020, with Q1 2020 including a **$10,646 thousand** goodwill impairment[196](index=196&type=chunk) [Supplemental Operating Results on a Non-GAAP Basis](index=36&type=section&id=Supplemental%20Operating%20Results%20on%20a%20Non-GAAP%20Basis) This section provides non-GAAP financial measures, such as EBITDA and Adjusted EBITDA, to offer additional insights into the company's operating performance. Non-GAAP Operating Results (in thousands) | Quarter Ended | June 30, 2020 | March 31, 2020 | December 31, 2019 | September 30, 2019 | June 30, 2019 | | :-------------------------- | :------------ | :------------- | :---------------- | :----------------- | :------------ | | GAAP Net Loss | $(2,459) | $(13,183) | $563 | $242 | $417 | | EBITDA | $(1,716) | $(12,695) | $1,304 | $801 | $871 | | Adjusted EBITDA | $(1,147) | $(1,907) | $(547) | $426 | $1,093 | | Loss on goodwill impairment | $0 | $10,646 | $0 | $0 | $0 | - EBITDA and Adjusted EBITDA turned negative in Q1 and Q2 2020, reflecting the significant GAAP net losses and the impact of the goodwill impairment[199](index=199&type=chunk) - Adjusted EBITDA for Q2 2020 was **$(1,147) thousand**, a substantial decrease from **$1,093 thousand** in Q2 2019[199](index=199&type=chunk) [Liquidity and Capital Resources](index=37&type=section&id=Liquidity%20and%20Capital%20Resources) This section discusses the company's liquidity position, highlighting its history of net losses and negative operating cash flows, the impact of the COVID-19 pandemic, and the measures taken to secure funding, including a PPP loan and an at-the-market equity offering. - As of June 30, 2020, the company had cash and cash equivalents of **$870 thousand** and a working capital deficit of **$9,211 thousand**, continuing a history of net losses and negative cash flows from operating activities[201](index=201&type=chunk) - The COVID-19 pandemic caused rapid business deterioration, leading to reduced demand, delayed projects, slowed cash flows, and downward revisions of internal forecasts[202](index=202&type=chunk) - Management believes it can continue as a going concern through at least August 15, 2021, based on the **$1,552 thousand** PPP funding, operational forecasts, access to capital markets via the Roth agreement, and continued support from Slipstream[213](index=213&type=chunk) [Item 4. Controls and Procedures](index=40&type=section&id=Item%204.%20Controls%20and%20Procedures) This section reports on the effectiveness of the company's disclosure controls and procedures and any changes in internal control over financial reporting. [Evaluation of Disclosure Controls and Procedures](index=40&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) This section reports on management's assessment of the effectiveness of the company's disclosure controls and procedures. - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of June 30, 2020[221](index=221&type=chunk) [Changes in Internal Control over Financial Reporting](index=40&type=section&id=Changes%20in%20Internal%20Control%20over%20Financial%20Reporting) This section discloses any material changes in the company's internal control over financial reporting during the reporting period. - There were no changes in internal control over financial reporting during the quarter ended June 30, 2020, that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[222](index=222&type=chunk) PART II. OTHER INFORMATION This section includes disclosures on legal proceedings, risk factors, sales of equity securities, defaults, mine safety, and other relevant information. [Item 1. Legal Proceedings](index=41&type=section&id=Item%201.%20Legal%20Proceedings) This section states that there are no material legal proceedings to report under this item. - No material legal proceedings are reported under this item[224](index=224&type=chunk) [Item 1A. Risk Factors](index=41&type=section&id=Item%201A.%20Risk%20Factors) This section highlights additional risks, specifically concerning the sufficiency and limitations of funding from the company's at-the-market (ATM) facility due to SEC 'baby shelf rules'. - Funding from the at-the-market (ATM) facility may be insufficient to fund operations or implement strategy[226](index=226&type=chunk) - The company's ability to sell shares under the ATM facility is limited by SEC 'baby shelf rules' to no more than one-third of its public float in any 12-month period, as its public float remains below **$75 million**[227](index=227&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=41&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) 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 were reported[228](index=228&type=chunk) [Item 3. Defaults Upon Senior Securities](index=41&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This section states that there were no defaults upon senior securities to report. - No defaults upon senior securities were reported[229](index=229&type=chunk) [Item 4. Mine Safety Disclosures](index=41&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section indicates that mine safety disclosures are not applicable to the company. - Mine safety disclosures are not applicable[230](index=230&type=chunk) [Item 5. Other Information](index=41&type=section&id=Item%205.%20Other%20Information) This section states that there is no other information to report. - No other information was reported[231](index=231&type=chunk) [Item 6. Exhibits](index=42&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including certifications from the CEO and CFO, and XBRL-related documents. - Exhibits include CEO and CFO certifications (31.1, 31.2, 32.1, 32.2) and XBRL instance and taxonomy documents (101.INS, 101.SCH, 101.CAL, 101.DEF, 101.LAB, 101.PRE)[233](index=233&type=chunk) [SIGNATURES](index=43&type=section&id=SIGNATURES) This section contains the signatures of the registrant's authorized officers, certifying the filing of the report. - The report is signed by Richard Mills, Chief Executive Officer, and Will Logan, Chief Financial Officer, on August 13, 2020[237](index=237&type=chunk)

Creative Realities, Inc. (NASDAQ:CREX) Q1 2020 Earnings Conference Call May 15, 2020 9:00 AM ET Company Participants Rick Mills - Chief Executive Officer Will Logan - Chief Financial Officer Conference Call Participants Brian Kinstlinger - Alliance Global Partners Will Logan Good morning and welcome to the Creative Realities First Quarter 2020 Earnings Call. All lines have been placed on mute to prevent any background noise. After the Company’s remarks, there will be a question-and-answer session. [Operator ...