crex20250331

crex20250331_10q.htm

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 March 31, 2025

☐

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
State or Other Jurisdiction of		I.R.S. Employer
Incorporation or Organization		Identification No.

13100 Magisterial Drive, Suite 102, Louisville KY		40223
Address of Principal Executive Offices		Zip Code

	(502) 791-8800
Registrant’s Telephone Number, Including Area Code

13100 Magisterial Drive, Suite 100, Louisville KY 40223

Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report

Securities registered pursuant to Section 12(b) of the Act:

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

APPLICABLE ONLY TO CORPORATE ISSUERS

As of May 13, 2025, the registrant had 10,518,932 shares of common stock outstanding.

PART 1. FINANCIAL INFORMATION

Item 1. Financial Statements

CREATIVE REALITIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except per share amounts)

	*March 31,*			*December 31,*
	*2025*			*2024*
	(unaudited)
ASSETS
Current Assets:
Cash and cash equivalents	$	1,149		$	1,037
Accounts receivable, net		12,983			10,605
Inventories, net		1,788			1,995
Prepaid expenses and other current assets		959			859
Total Current Assets	$	16,879		$	14,496
Property and equipment, net		335			321
Goodwill		26,453			26,453
Other intangible assets, net		22,309			22,841
Operating lease right-of-use assets		682			787
Other non-current assets		333			312
Total Assets	$	66,991		$	65,210

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	4,658		$	6,354
Accrued expenses and other current liabilities		2,767			3,210
Deferred revenues		3,479			1,137
Customer deposits		2,051			2,181
Current maturities of operating leases		404			466
Short-term debt		387			-
Short-term contingent consideration, at fair value		-			12,815
Total Current Liabilities		13,746			26,163
Revolving credit facility		19,238			13,044
Long-term debt		3,613			-
Long-term obligations under operating leases		295			342
Other non-current liabilities		229			201
Total Liabilities		37,121			39,750

Shareholders’ Equity
Common stock, $0.01 par value, 66,666 shares authorized; 10,447 and 10,447 shares issued and outstanding, respectively		104			104
Additional paid-in capital		83,252			82,210
Accumulated deficit		(53,486	)		(56,854	)
Total Shareholders’ Equity		29,870			25,460
Total Liabilities and Shareholders’ Equity	$	66,991		$	65,210

See accompanying notes to condensed consolidated financial statements

CREATIVE REALITIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

(Unaudited)

	*For the Three Months Ended*
	*March 31,*
	*2025*			*2024*
Sales
Hardware	$	3,394		$	4,144
Services and other		6,340			8,141
Total sales		9,734			12,285
Cost of sales
Hardware		2,304			3,193
Services and other		2,977			3,328
Total cost of sales		5,281			6,521
Gross profit		4,453			5,764
Operating expenses:
Sales and marketing expenses		1,247			1,465
General and administrative expenses		3,928			4,375
Total operating expenses		5,175			5,840
Operating loss		(722	)		(76	)

Other expenses (income):
Interest expense, including amortization of debt discount		321			663
Gain on change in fair value of contingent consideration		-			(604	)
Gain on settlement of contingent consideration		(4,775	)		-
Other expense (income)		265			(35	)
Total other expenses (income)		(4,189	)		24
Net income (loss) before income taxes		3,467			(100	)
Provision for income taxes		(99	)		(9	)
Net income (loss)	$	3,368		$	(109	)
Basic earning (loss) per common share	$	0.32		$	(0.01	)
Diluted earning (loss) per common share	$	0.32		$	(0.01	)
Weighted average shares outstanding - basic		10,447			10,421
Weighted average shares outstanding - diluted		10,447			10,421

See accompanying notes to condensed consolidated financial statements.

CREATIVE REALITIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

	*Three Months Ended*
	*March 31,*
	*2025*			*2024*
Operating Activities:
Net income (loss)	$	3,368		$	(109	)
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities
Depreciation and amortization		1,187			839
Amortization of debt discount		-			360
Amortization of stock-based compensation		2			3
Amortization of deferred financing costs		26			-
Provision for inventory reserves		18			-
Gain on settlement of contingent consideration		(4,775	)		-
Gain on change in fair value of contingent consideration		-			(604	)
Deferred income taxes		39			4
Changes to operating assets and liabilities:
Accounts receivable		(2,378	)		2,952
Inventories		189			(498	)
Prepaid expenses and other current assets		(100	)		(172	)
Accounts payable		(1,744	)		(2,976	)
Accrued expenses and other current liabilities		(431	)		317
Deferred revenue		2,342			645
Customer deposits		(130	)		1,178
Other, net		(62	)		(1	)
Net cash (used in) provided by operating activities		(2,449	)		1,938
Investing activities
Purchases of property and equipment		(8	)		(6	)
Capitalization of labor for software development		(613	)		(824	)
Net cash used in investing activities		(621	)		(830	)
Financing activities
Proceeds from borrowings under revolving credit facility		12,111			-
Repayment of borrowings under revolving credit facility		(5,917	)		-
Settlement of contingent consideration		(3,000	)		-
Repayment of term debt		-			(1,109	)
Principal payments on finance leases		(12	)		(10	)
Net cash provided by (used in) financing activities		3,182			(1,119	)
Increase (decrease) in cash and cash equivalents		112			(11	)
Cash and cash equivalents, beginning of period		1,037			2,910
Cash and cash equivalents, end of period	$	1,149		$	2,899

See accompanying notes to condensed consolidated financial statements.

CREATIVE REALITIES, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(in thousands, except shares)

(Unaudited)

					*Additional*
	*Common Stock*				*paid in*		*Accumulated*
	*Shares*		*Amount*		*capital*		*Deficit*			*Total*
Three Months Ended March 31, 2025
Balance as of December 31, 2024		10,446,659	$	104	$	82,210	$	(56,854	)	$	25,460
Stock-based compensation		-		-		2		-			2
Issuance of warrants		-		-		1,040		-			1,040
Net income		-		-		-		3,368			3,368
Balance as of March 31, 2025		10,446,659	$	104	$	83,252	$	(53,486	)	$	29,870

					*Additional*
	*Common Stock*				*paid in*		*Accumulated*
	*Shares*		*Amount*		*capital*		*Deficit*			*Total*
Three Months Ended March 31, 2024
Balance as of December 31, 2023		10,409,027	$	104	$	82,073	$	(53,346	)	$	28,831
Stock-based compensation		-		-		3		-			3
Shares issued to employees pursuant to the Retention Bonus Plan		37,632		-		124		-			124
Net loss		-		-		-		(109	)		(109	)
Balance as of March 31, 2024		10,446,659	$	104	$	82,200	$	(53,455	)	$	28,849

See accompanying notes to condensed consolidated financial statements.

CREATIVE REALITIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except shares and per share amounts)

(unaudited)

NOTE 1: NATURE OF ORGANIZATION AND OPERATIONS

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

Nature of the Company’s Business

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

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

Liquidity and Financial Condition; Going Concern

In accordance with Accounting Standards Update (“ASU”) No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (Subtopic 205-40) (“ASU 205-40”), the Company has evaluated whether there are certain conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the Condensed Consolidated Financial Statements are issued.

As of March 31, 2025, the Company has an accumulated deficit of $53,486 and positive working capital of $3,133. For the three months ended March 31, 2025, the Company generated an operating loss of $722 and negative net cash flows from operations of $2,449. During the three months ended March 31, 2025, the Company settled its contingent consideration liability. The Company remains dependent on improving cash flows from operations, securing additional sources of liquidity, or both, to fund ongoing operations to meet its financial obligations, including its debt obligations under its current Credit Agreement.

In response to these conditions, the Company continues to evaluate its available options for amending its debt facilities or accessing the capital markets via equity financing. However, these plans have not been finalized, are subject to market conditions, and in some respects are not within the Company’s control. Therefore, they cannot be deemed probable within one year after the date that the Condensed Consolidated Financial Statements are issued. As a result of the matters discussed above, including our losses, current liquidity level and projected capital needs, the Company has concluded that management's plans do not alleviate substantial doubt about the Company's ability to continue as a going concern over the next twelve months from the date the Condensed Consolidated Financial Statements are issued.

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

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

1. Basis of Presentation

The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X and include all of the information and disclosures required by generally accepted accounting principles in the United States of America (“GAAP”) for interim financial reporting. These unaudited Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements of the Company and related footnotes for the year ended December 31, 2024, included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 14, 2025.

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

The results of operations for the interim periods are not necessarily indicative of results of operations for a full year. Management believes the accompanying unaudited Condensed Consolidated Financial Statements reflect all adjustments, including normal recurring items, considered necessary for a fair statement of results for the interim periods presented.

2. Recently Issued Accounting Pronouncements Not Yet Adopted

In November 2023, the Financial Accounting Standards Board (“FASB”) issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires public entities to disclose information about their reportable segments’ significant expenses and other segment items on an interim and annual basis. Public entities with a single reportable segment are required to apply the disclosure requirements in ASU 2023-07, as well as all existing segment disclosures and reconciliation requirements in ASC 280 on an interim and annual basis. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and for interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The Company adopted the new standard for the fiscal year ending December 31, 2024. See Note 13 Segment Reporting for new required disclosures.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires public entities, on an annual basis, to provide disclosure of specific categories in the rate reconciliation, as well as disclosure of income taxes paid disaggregated by jurisdiction. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the impact of adopting ASU 2023-09.

3. Cash and cash equivalents

Cash and cash equivalents consist of cash on deposit in financial institutions, in both the United States and Canada. The Company does not hold any investments that qualify as cash equivalents as of March 31, 2025. As of March 31, 2025, the Company had approximately $908 in cash that was held in a Canadian financial institution. The Company does not believe the balance presents a material concentration of credit risk, as the cash is held with a reputable financial institution.

4. Revenue Recognition

We recognize revenue in accordance with Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers, applying the five-step model.

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

The Company estimates the amount of total contract consideration it expects to receive for variable arrangements by determining the most likely amount it expects to earn from the arrangement based on the expected quantities of services it expects to provide and the contractual pricing based on those quantities. The Company only includes some or a portion of variable consideration in the transaction price when it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. The Company considers the sensitivity of the estimate, its relationship and experience with the customer and variable services being performed, the range of possible revenue amounts and the magnitude of the variable consideration to the overall arrangement. The Company receives variable consideration in very few instances.

Revenue is recognized when a customer obtains control of promised goods or services under the terms of a contract and is measured as the amount of consideration the Company expects to receive in exchange for transferring goods or providing services. The Company has very few contracts with material extended payment terms as payment is typically due at or shortly after the time of the sale, typically ranging between thirty and ninety days. In those instances where the Company has material extended payment terms (most commonly in multi-year arrangements where the Company acts as an agent to a transaction on behalf of its customers), the Company evaluates and applies constraints to arrive at the revenue recognized in the period in which a contract is entered. Observable prices are used to determine the standalone selling price of separate performance obligations or a cost plus margin approach when one is not available. Sales, value-added and other taxes collected concurrently with revenue producing activities are excluded from revenue.

The Company recognizes contract assets or unbilled receivables related to revenue recognized for services completed but not yet invoiced to the customers. A contract liability is recognized as deferred revenue when the Company invoices customers in advance of performing the related services under the terms of a contract. Deferred revenue is recognized as revenue when the Company has satisfied the related performance obligation.

The Company uses the practical expedient for recording an immediate expense for incremental costs of obtaining contracts, including certain design/engineering services, commissions, incentives and payroll taxes, as these incremental and recoverable costs have terms that do not exceed one year.

5. Allowance for Credit Losses

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

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

	*March 31,*			*March 31,*
	*2025*			*2024*
Balance as of beginning of period	$	708		$	701
Write-offs charged against the allowance		(9	)		-
Balance as of end of period	$	699		$	701

6. Inventories

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

	*March 31,*		*December 31,*
	*2025*		*2024*
Raw materials	$	1,252	$	1,465
Work-in-process		536		530
Total inventories	$	1,788	$	1,995

7. Impairment of Long-Lived Assets

We review the carrying value of all long-lived assets, including property and equipment, for impairment in accordance with ASC 360, Accounting for the Impairment or Disposal of Long-Lived Assets. Under ASC 360, impairment losses are recorded whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable.

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

8. Basic and Diluted Earning (Loss) per Common Share

Basic and diluted earning (loss) per common share for all periods presented is computed using the weighted average number of common shares outstanding. Basic weighted average shares outstanding includes only outstanding common shares. Diluted weighted average shares outstanding includes outstanding common shares and potential dilutive common shares outstanding in accordance with the treasury stock method. Shares reserved for outstanding stock options, including stock options with performance restricted vesting, and warrants totaling 6,913,928 and 6,222,800 at March 31, 2025 and 2024, respectively were excluded from the computation of earning (loss) per share as the strike price on the options and warrants were higher than the Company’s market price and therefore anti-dilutive.

9. Income Taxes

Deferred income taxes are recognized in the financial statements for the tax consequences in future years of differences between the tax basis of assets and liabilities and their financial reporting amounts based on enacted tax laws and statutory tax rates. Temporary differences arise from a number of matters including, but not limited to, net operating losses, differences in basis of intangibles, stock-based compensation, reserves for uncollectible accounts receivable and inventory, differences in depreciation methods, and accrued expenses. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. The Company accounts for uncertain tax positions utilizing an established recognition threshold and measurement attributes for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. We had no uncertain tax positions as of March 31, 2025 and December 31, 2024.

10. Goodwill and Intangible Assets

We follow the provisions of ASC 350, Goodwill and Other Intangible Assets. Pursuant to ASC 350, goodwill acquired in a purchase business combination is not amortized, but instead tested for impairment at least annually. The Company uses an annual measurement date of September 30 to assess impairment of goodwill and indefinite-lived intangible assets, or as indicators are identified.

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

11. Use of Estimates

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

NOTE 3: FAIR VALUE MEASUREMENT

We measure certain financial assets, including cash equivalents, at fair value on a recurring basis. In accordance with ASC 820-10-30, fair value is a market-based measurement that should be determined based on the assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, ASC 820-10-35 establishes a three-level hierarchy that prioritizes the inputs used in measuring fair value. The three hierarchy levels are defined as follows:

Level 1 — Valuations based on unadjusted quoted prices in active markets for identical assets.

Level 2 — Valuations based on observable inputs (other than Level 1 prices), such as quoted prices for similar assets at the measurement date; quoted prices in markets that are not active; or other inputs that are observable, either directly or indirectly.

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

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

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

NOTE 4: REVENUE RECOGNITION

The Company applies ASC 606 for revenue recognition. The following table disaggregates the Company’s revenue by major source for the three months ended March 31, 2025 and 2024:

	*Three Months*		*Three Months*
	*Ended*		*Ended*
	*March 31,*		*March 31,*
*(in thousands)*	*2025*		*2024*
Hardware	$	3,394	$	4,144

Services:
Managed Services		4,247		4,774
Installation Services		1,595		2,160
Other Services		498		1,207
Total Services		6,340		8,141

Total Hardware and Services	$	9,734	$	12,285

Hardware

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

Managed Services

Software as a service (“SaaS”) license sales

Software as a service includes revenue from software licensing and delivery in which software is licensed on a subscription basis and is centrally hosted by the Company. These services often include software updates which provide customers with rights to unspecified software product upgrades and maintenance releases and patches released during the term of the support period. Contracts for these services are generally 12-36 months in length and typically have perpetual autorenewal terms. We account for revenue from these services in accordance with ASC 985-20-15-5 and recognize revenue ratably over the performance period.

Maintenance and support services

The Company sells support services that include access to technical support personnel for software and hardware troubleshooting. The Company offers a hosting service through our network operations center, or NOC, allowing the ability to monitor and support our customers’ networks 7 days a week, 24 hours a day. These contracts are generally 12-36 months in length and typically have autorenewal terms. Revenue is recognized over the term of the agreement in proportion to the costs incurred in fulfilling performance obligations under the contract.

Maintenance and support fees are based on the level of service provided to end customers, which can range from monitoring the health of a customer’s network, supporting a sophisticated web-portal, or managing the end-to-end hardware and software of a digital marketing system. These agreements are renewable by the customer. Rates for maintenance and support, including subsequent renewal rates, are typically established based upon a fee per location, per device, or a specified percentage of net software license fees as set forth in the arrangement. These contracts are generally 12-36 months in length. Revenue is recognized ratably and evenly over the service period.

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

Installation Services

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

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

Other Services

Software design and development services

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

Media sales

Media revenues are derived from selling (i) promotion and sponsorship packages to monetize customer infrastructure assets, including mobile takeover or physical presence, or (ii) digital advertising inventory to advertisers on digital displays or other outdoor structures, owned or controlled by our customers, each within physical venues. We sell advertising or sponsorship opportunities on behalf of our media network owner customers to brands and advertisers. We generally do not own the devices that display the sold digital advertising. The Company has concluded that it acts as an agent and reports media revenues on a net basis, with the Company recording its commission, which typically is between thirty percent (30%) and forty percent (40%) of the total media sales contract, as revenue in the consolidated financial statements.

The media sales contracts we facilitate on behalf of our customers range from a single day to eight years. The Company invoices advertisers on behalf of our customers and remits the net cash to our customer after the advertiser has paid the Company the fees owed for such advertising. Media revenue services are recognized when the Company has completed its performance obligations under the contract with our customers, which typically has concluded upon facilitating execution of contracts between our customer and a brand/advertiser. The Company applies time-based constraints in accordance with ASC 606 to evaluate the earned portion of the contract to record at execution.

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

Note 5: Business Combinations

Merger-related Contingent Consideration Settlement

On November 12, 2021, the Company entered into an Agreement and Plan of Merger with Reflect and RSI Exit Corporation, as representative of the former stockholders of Reflect (the “Stockholders’ Representative”), which was amended on February 8, 2022, February 11, 2023, February 17, 2025, and February 23, 2025 (as amended, the “Merger Agreement”). Pursuant to the Merger Agreement, the Company’s direct, wholly owned subsidiary, CRI Acquisition Corporation, merged with and into Reflect, with Reflect continuing as the surviving entity and becoming a wholly owned subsidiary of the Company (the “Merger”). The Merger was closed on February 17, 2022. The Merger Agreement required the Company to pay to the former Reflect stockholders on or after February 17, 2025 (the “Guaranteed Date”) additional contingent supplemental cash payments (the “Guaranteed Consideration”) if the average closing price of the Company’s common stock in the fifteen (15) trading day period prior to the Guaranteed Date was below $6.40 per share (such applicable amount, the “Guaranteed Price”).

On March 14, 2025, the Company and Reflect entered into a Settlement Agreement and Fifth Amendment to Merger Agreement with the Stockholder’s Representative (the “Settlement Agreement”), pursuant to which the Company settled and resolved a dispute regarding the amount and enforceability of the Guaranteed Consideration. Pursuant to the Settlement Agreement, the Company’s obligation to pay the Guaranteed Consideration to the former Reflect stockholders was terminated and released. In consideration for such termination and release, (i) the Company deposited an aggregate of $3,000 in cash with an exchange agent for the ratable benefit of, and for distribution to, the former Reflect stockholders, (ii) the Company and Reflect (as co-obligors) delivered a subordinated promissory note in the principal amount of $4,000 payable to the order of the Stockholders’ Representative, as nominee for, and for the ratable benefit of, the former Reflect stockholders (the “Promissory Note”), and (iii) the Company agreed to issue to the former Reflect stockholders warrants to purchase their pro rata share of an aggregate of 777,800 shares of the Company’s common stock (the “Settlement Warrants”).

As a result of the Settlement Agreement, the Company derecognized the previously recorded contingent consideration liability related to the Merger of $12,815 and recorded the fair value of the settlement consideration of $8,040, which included $3,000 in cash, the $4,000 Promissory Note, and Settlement Warrants with a fair value of $1,040. The Company recognized a gain on settlement of $4,775 during the three months ended March 31, 2025 in the Condensed Consolidated Statement of Operations.

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

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

NOTE 6: SUPPLEMENTAL CASH FLOW STATEMENT INFORMATION

	*Three Months Ended*
	*March 31,*
	*2025*		*2024*
Supplemental non-cash investing and financing activities
Capitalized software in accounts payable	$	58	$	89
Property and equipment in accounts payable	$	57	$	-
Right-of-use assets obtained in exchange for new finance lease liabilities	$	-	$	9
Issuance of term note as partial settlement of contingent consideration	$	4,000	$	-
Issuance of warrants as partial settlement of contingent consideration	$	1,040	$	-

Supplemental disclosure information for cash flow
Cash paid during the period for:
Interest	$	270	$	323
Operating leases	$	134	$	190
Income taxes, net	$	1	$	-

NOTE 7: INTANGIBLE ASSETS, INCLUDING GOODWILL

Intangible Assets

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

	*March 31,*				*December 31,*
	*2025*				*2024*
	*Gross*				*Gross*
	*Carrying*		*Accumulated*		*Carrying*		*Accumulated*
	*Amount*		*Amortization*		*Amount*		*Amortization*
Technology platform	$	7,140	$	3,253	$	7,140	$	3,041
Purchased and developed software		14,384		5,559		13,780		5,006
Customer relationships		13,910		4,673		13,910		4,350
Trademarks and trade names		1,260		900		1,260		852
		36,694		14,385		36,090		13,249
Accumulated amortization		14,385				13,249
Net book value of amortizable intangible assets	$	22,309			$	22,841

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

Goodwill

Goodwill represents the excess of the purchase price paid by the Company over the fair value of net assets acquired by the Company. Goodwill is subject to an impairment review at a reporting unit level, evaluated on an annual basis at September 30 of each fiscal year, when an event occurs, or circumstances change that would indicate potential impairment. The assessment may be performed quantitatively or qualitatively. The Company has only one reporting unit, and therefore the entire goodwill is allocated to that reporting unit. The Company assesses the carrying value of goodwill at the reporting unit level based on an estimate of the fair value of its reporting unit.

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

The fair value of the reporting unit was estimated using a combination of the market approach and income approach (discounted cash flow method). The market approach considered valuation multiples of comparable public companies and recent industry acquisition activity. The income approach involved discounted projected cash flows based on management’s expectations of future performance, including historical trends, recent revenue growth, backlog, and customer acquisition activity. The valuation reflected assumptions regarding future operating results, terminal growth, and a discount rate reflecting the Company’s weighted-average cost of capital and risk profile.

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

While no impairment was identified, the excess of the fair value over the carrying amount of the subject assets was not significant. Accordingly, changes in key assumptions, such as reductions in the Company’s projected 2025 operating results or further declines in its market capitalization, could result in a material impairment charge in a future period. The Company will continue to monitor actual performance relative to expectations and evaluate for potential impairment indicators in future periods. The valuation of goodwill involves significant judgment and estimation uncertainty, and future events could result in an impairment charge. A determination that there exists no impairment of goodwill in the current quarter does not mean and should not be interpreted as though there will not exist any impairment of goodwill in future quarters.

NOTE 8: DEBT

Debt for the Company consists of the following:

			*March 31,*		*December 31,*
Debt Instrument	*Issuance Date*	*Maturity Date*	*2025*		*2024*		*Interest Rate Information*
Revolving Credit Facility	5/23/2024	5/23/2027	$	19,238	$	13,044	See below
Promissory Note	3/14/2025	9/14/2027		4,000		-		14	%

Total debt, gross				23,238		13,044
Less: Deferred financing costs				217		243
Total debt, net				23,021		12,801
Less: Current portion				387		-
Total long-term debt, net			$	22,634	$	12,801

Revolving Credit Facility

On May 23, 2024, the Company entered into a Credit Agreement (the “Credit Agreement”) with First Merchants Bank (the “Bank”). The Credit Agreement provides the Company with a $22,100 secured revolving credit facility, with an uncommitted accordion feature that provides for additional borrowing capacity of up to $5,000, subject to the Bank’s approval and other customary terms and conditions set forth in the Credit Agreement. The revolving credit facility matures on May 23, 2027, subject to any earlier default under the Credit Agreement. The Credit Agreement requires the Company to pay the entire unpaid principal balance of the revolving credit facility on the maturity date, subject to any earlier default under the Credit Agreement. The Credit Agreement includes, among other things, the occurrence of any event which could reasonably be anticipated to cause or result in a “Material Adverse Effect” (as defined in the Credit Agreement) as an event of default under which the outstanding balance could become due and payable to the Bank. The Company has determined that the risk of such event is not probable and therefore has classified the outstanding balance in long-term liabilities in the Condensed Consolidated Balance Sheets based on the maturity date.

Effective March 31, 2025, the Company entered into an amendment to the Credit Agreement, modifying the financial covenant related to the Senior Funded to EBITDA ratio. Pursuant to the amendment, the Company is required to maintain a Senior Funded Debt to EBITDA ratio of less than 4 to 1 through June 30, 2025, and less than 3.75 to 1 beginning with the quarter ending September 30, 2025 and thereafter.

The revolving credit facility accrues interest at a floating rate equal to the 1-month SOFR, plus 0.11%, plus a floating margin ranging from 2.00% to 3.50% that adjusts quarterly, depending upon the Company’s Senior Funded Debt to EBITDA Ratio. The floating margin is determined as follows:

Senior Funded Debt to EBITDA Ratio	Floating Margin
< 1.00 to 1		2.00	%
≥ 1.00 to 1.00 but < 2.00 to 1.00		2.50	%
≥ 2.00 to 1.00 but < 3.00 to 1.00		3.00	%
≥ 3.00 to 1.00		3.50	%

The effective interest rate at March 31, 2025 was 7.43%. The Company pays accrued interest monthly on the first day of each successive calendar month.

The Company incurred $306 of deferred financing costs that were capitalized and recorded as other non-current assets within the Condensed Consolidated Balance Sheets. Deferred financing costs are being amortized as interest expense over the respective debt instrument period, 36 months.

The Company had $19,238 in outstanding borrowings under the revolving credit facility as of March 31, 2025. Total availability under the revolving facility was $2,862.

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

Promissory Note

The Promissory Note was issued on March 14, 2025 as part of the Settlement Agreement to resolve the contingent consideration liability. It is an unsecured obligation of the Company. The Promissory Note bears interest at a fixed annual rate of 14.0%. In the event of a default (as defined in the Promissory Note), or during any period of non-payment caused by restrictions under the Subordination Agreement (as defined below), the interest rate increases to 17.0% per annum (the “Interest Rate”). The Promissory Note requires monthly payments of interest only commencing April 14, 2025 and continuing through September 14, 2025. Commencing October 14, 2025, the Company is required to pay principal and interest in accordance with an amortization schedule that requires equal monthly payments of $109 on the 14th day of each calendar month through maturity on September 14, 2027. On the maturity date, the Company is required to make a final balloon payment of $2,277, representing the remaining principal and accrued but unpaid interest outstanding at maturity.

The principal balance of the Promissory Note (together with accrued but unpaid interest on such amounts) may be prepaid in whole or in part at any time prior to maturity, subject to the Company’s payment of a make-whole payment with such prepayment. The make-whole payment is equal to the aggregate monthly payments of interest on the prepayment amount that would be due after the prepayment date and through the maturity date, using the percentage, if any, by which the Interest Rate exceeds a prescribed “yield maintenance treasury rate.”

The Stockholders’ Representative’s rights under the Promissory Note are subject to a Subordination Agreement dated of March 14, 2025 by and among the Company, Reflect, First Merchants Bank and the Stockholders’ Representative (the “Subordination Agreement”). Under the terms of the Subordination Agreement, during any period in which an event of default exists under the senior debt facilities, the Company is prohibited from making any payments on the Promissory Note unless First Merchants Bank provides prior written consent, and the Stockholders' Representative is prohibited from accepting or enforcing any payments during the subordination period. The Promissory Note includes a default interest provision that increases the stated interest rate to 17% in the event of nonpayment or other specified defaults.

NOTE 9: COMMITMENTS AND CONTINGENCIES

The Company is not party to any material legal proceedings, other than ordinary routine litigation incidental to the business, and there were no other such proceedings pending during the period covered by this Report.

NOTE 10: INCOME TAXES

Our deferred tax assets are primarily related to net federal and state operating loss carryforwards (“NOLs”). We have substantial NOLs that are limited in usage by IRC Section 382. IRC Section 382 generally imposes an annual limitation on the amount of NOLs that may be used to offset taxable income when a corporation has undergone significant changes in stock ownership within a statutory testing period. We have performed a preliminary analysis of the annual NOL carryforwards and limitations that are available to be used against taxable income. Based on the history of losses of the Company, there continues to be a full valuation allowance against the net deferred tax assets of the Company with a definite life.

For the three months ended March 31, 2025 and 2024, we reported tax expense of $99 and $9, respectively. At March 31, 2025, the net deferred tax liabilities were $172 after valuation allowance, compared to net tax liabilities of $133 at December 31, 2024.

NOTE 11: WARRANTS

The Company had outstanding warrants accounted for as equity instruments in the Company’s Condensed Consolidated Financial Statements totaling 5,364,802 and 4,587,002 at March 31, 2025 and December 31, 2024, respectively. The weighted average exercise price of the outstanding warrants was $4.66 and $4.90 at March 31, 2025 and December 31, 2024, respectively. The weighted average remaining contractual life of the outstanding warrants was 3.31 and 3.11 years at March 31, 2025 and December 31, 2024, respectively.

On March 14, 2025, the Company issued to the former Reflect stockholders the Settlement Warrants to purchase their pro rata share of an aggregate of 777,800 shares of the Company’s common stock at an exercise price equal to $3.25 per share, subject to adjustment for stock dividends, distributions, subdivisions, combinations, or reclassifications. The Settlement Warrants are exercisable immediately and expire six years from the date of issuance. They may be exercised for cash or, at the holder’s election, on a cashless (net settlement) basis. The Company evaluated the Settlement Warrants under ASC 815-40, Derivatives and Hedging - Contracts in Entity’s Own Equity, and concluded that the Settlement Warrants meet the criteria for equity classification. As such, the Settlement Warrants are not subject to remeasurement. Accordingly, the fair value of the Settlement Warrants at issuance was recorded as a component of additional paid-in capital within shareholders’ equity. The fair value of the Settlement Warrants was estimated at $1.34 per share as of the issuance date, using the Black-Scholes option pricing model. Key assumptions included: expected volatility of 94%, expected term of 6 years (matching the exercise term), risk-free interest rate of 4.15%, dividend yield of 0%, and the Company’s stock price of $1.88 as of the valuation date.

NOTE 12: STOCK-BASED COMPENSATION

A summary of outstanding options is included below:

Time Vesting Options			Weighted
			Average		Weighted				Weighted
			Remaining		Average				Average
Range of Exercise	Number		Contractual		Exercise		Options		Exercise
Prices between	Outstanding		Life		Price		Exercisable		Price
$4.01 - $8.00		506,672		5.41	$	7.40		506,672	$	7.40
$8.01+		69,120		1.22		21.04		69,120	$	21.04
		575,792		4.91	$	9.03		575,792

Performance Vesting Options

Weighted

Average

Weighted

Remaining

Average

Number

Contractual

Exercise

Options

Exercise

Outstanding

Life

Price

Exercisable

Price

240,000

5.17

7.59

240,000

7.59

Market Vesting Options

Weighted

Average

Weighted

Remaining

Average

Number

Contractual

Exercise

Options

Exercise

Outstanding

Life

Price

Exercisable

Price

733,334

7.21

3.00

Performance Vesting

Market Vesting Options

Time Vesting Options

Options

Weighted

Average

Options

Exercise

Options

Exercise

Options

Exercise

Date/Activity

Outstanding

Price

Outstanding

Price

Outstanding

Price

Balance, December 31, 2024

733,334

3.00

591,897

9.57

240,000

7.59

Granted

SEC Form 10-Q filed by Creative Realities Inc.