Creative Realities, Inc 10-Q for FY2023 Q3
Creative Realities, Inc. (CREX)
About this 10-Q
Creative Realities, Inc filed this 10-Q on November 9, 2023, covering the quarter ended September 30, 2023 (FY2023 Q3).
Headline figures
Quarter ended September 30, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $11.57M
- up 3.5% from $11.18M a year earlier
- Net loss
- $1.93M
- compared with a net loss of $554K a year earlier
- Diluted EPS
- -$0.22
- compared with -$0.08 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
| | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
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
Creative Realities, Inc.
(Exact Name of Registrant as Specified in its Charter)
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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 | ||
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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.
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).
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 | ☐ |
| | ☒ | 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
APPLICABLE ONLY TO CORPORATE ISSUERS
As of November 9, 2023, the registrant had
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
CREATIVE REALITIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
| September 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| (unaudited) | ||||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Work-in-process and inventories, net | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Operating lease right-of-use assets | ||||||||
| Intangibles, net | ||||||||
| Goodwill | ||||||||
| Other assets | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses | ||||||||
| Deferred revenues | ||||||||
| Customer deposits | ||||||||
| Current maturities of operating leases | ||||||||
| Short-term portion of Secured Promissory Note | ||||||||
| Short-term portion of related party Consolidation Term Loan, net of $ and $ discount, respectively | ||||||||
| Short-term related party Term Loan (2022) | ||||||||
| Total current liabilities | ||||||||
| Long-term Secured Promissory Note | ||||||||
| Long-term related party Acquisition Term Loan, net of $ and $ discount, respectively | ||||||||
| Long-term related party Consolidation Term Loan, net of $ and $ discount, respectively | ||||||||
| Long-term obligations under operating leases | ||||||||
| Contingent acquisition consideration, at fair value | ||||||||
| Other liabilities | ||||||||
| TOTAL LIABILITIES | ||||||||
| SHAREHOLDERS’ EQUITY | ||||||||
| Common stock, $ par value, shares authorized; and shares issued and outstanding, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| TOTAL SHAREHOLDERS' EQUITY | ||||||||
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | $ | ||||||
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 |
For the Nine Months Ended |
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| September 30, |
September 30, |
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| 2023 |
2022 |
2023 |
2022 |
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| Sales |
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| Hardware |
$ | $ | $ | $ | ||||||||||||
| Services and other |
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| Total sales |
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| Cost of sales |
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| Hardware |
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| Services and other |
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| Total cost of sales |
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| Gross profit |
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| Operating expenses: |
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| Sales and marketing expenses |
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| Research and development expenses |
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| General and administrative expenses |
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| Depreciation and amortization expense |
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| Deal and transaction expenses |
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| Total operating expenses |
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| Operating income (loss) |
( |
) | ( |
) | ( |
) | ||||||||||
| Other income (expenses): |
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| Interest expense, including amortization of debt discount |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Change in fair value of warrant liability |
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| Change in fair value of equity guarantee |
( |
) | ( |
) | ||||||||||||
| Loss on debt waiver consent |
( |
) | ||||||||||||||
| Loss on warrant amendment |
( |
) | ||||||||||||||
| Gain/(loss) on settlement of obligations |
( |
) | ||||||||||||||
| Other income (expense) |
( |
) | ( |
) | ||||||||||||
| Total other income (expense) |
( |
) | ( |
) | ( |
) | ||||||||||
| Net (loss) income before income taxes |
( |
) | ( |
) | ( |
) | ||||||||||
| Benefit (provision) for income taxes |
( |
) | ( |
) | ||||||||||||
| Net (loss) income |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ||||||
| Basic (loss) earnings per common share |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ||||||
| Diluted (loss) earnings per common share |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ||||||
| Weighted average shares outstanding - basic |
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| Weighted average shares outstanding - diluted |
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See accompanying notes to condensed consolidated financial statements.
CREATIVE REALITIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
| Nine Months Ended |
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| September 30, |
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| 2023 |
2022 |
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| Operating Activities: |
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| Net (loss) income |
$ | ( |
) | $ | ||||
| Adjustments to reconcile net (loss) income to net cash provided by operating activities |
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| Depreciation and amortization |
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| Amortization of debt discount |
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| Amortization of stock-based compensation |
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| Loss on debt waiver consent |
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| Loss on warrant amendment |
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| Loss on settlement of obligations |
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| Bad debt expense |
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| Gain on change in fair value of warrants |
( |
) | ||||||
| Loss (Gain) on change in fair value of contingent consideration |
( |
) | ||||||
| Deferred income taxes |
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| Changes to operating assets and liabilities: |
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| Accounts receivable |
( |
) | ||||||
| Work-in-process and inventories |
( |
) | ( |
) | ||||
| Prepaid expenses and other current assets |
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| Accounts payable |
( |
) | ( |
) | ||||
| Accrued expenses |
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| Deferred revenues |
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| Customer deposits |
( |
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| Other |
( |
) | ||||||
| Net cash provided by (used in) operating activities |
( |
) | ||||||
| Investing activities |
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| Acquisition of business, net of cash acquired |
( |
) | ||||||
| Purchases of property and equipment |
( |
) | ( |
) | ||||
| Capitalization of labor for software development |
( |
) | ( |
) | ||||
| Net cash used in investing activities |
( |
) | ( |
) | ||||
| Financing activities |
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| Principal payments on finance leases |
( |
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| Proceeds from sale of common stock, net of offering expenses |
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| Proceeds from sale of common stock in PIPE, net of offering expenses |
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| Proceeds from sale & exercise of pre-funded warrants in PIPE, net of offering expenses |
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| Proceeds from Acquisition Loan, net of offering expenses |
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| Repayment of Term Loan (2022) |
( |
) | ||||||
| Repayment of Consolidation Term Loan |
( |
) | ||||||
| Repayment of Secured Promissory Note |
( |
) | ( |
) | ||||
| Net cash provided by financing activities |
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| Increase (decrease) in Cash and Cash Equivalents |
( |
) | ||||||
| Cash and Cash Equivalents, beginning of period |
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| Cash and Cash Equivalents, end of period |
$ | $ | ||||||
See accompanying notes to condensed consolidated financial statements.
CREATIVE REALITIES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(in thousands, except shares)
(Unaudited)
| Additional |
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| Common Stock |
paid in |
Accumulated |
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| Shares |
Amount |
capital |
Deficit |
Total |
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| Three Months Ended September 30, 2023 |
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| Balance as of June 30, 2023 |
$ | $ | $ | ( |
) | $ | ||||||||||||||
| Stock-based compensation |
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| Issuance of common stock, net |
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| Net loss |
- | ( |
) | ( |
) | |||||||||||||||
| Balance as of September 30, 2023 |
$ | $ | $ | ( |
) | $ | ||||||||||||||
| Additional |
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| Common Stock |
paid in |
Accumulated |
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| Shares |
Amount |
capital |
Deficit |
Total |
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| Nine Months Ended September 30, 2023 |
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| Balance as of December 31, 2022 |
$ | $ | $ | ( |
) | $ | ||||||||||||||
| Stock-based compensation |
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| Shares issued to directors as compensation |
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| Shares issued to vendors as compensation |
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| Shares issued to employees pursuant to the Retention Bonus Plan |
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| Issuance of common stock, net |
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| Net loss |
- | ( |
) | ( |
) | |||||||||||||||
| Balance as of September 30, 2023 |
$ | $ | $ | ( |
) | $ | ||||||||||||||
| Additional |
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| Common Stock |
paid in |
Accumulated |
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| Shares |
Amount |
capital |
(Deficit) |
Total |
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| Three Months Ended September 30, 2022 |
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| Balance as of June 30, 2022 |
$ | $ | $ | ( |
) | $ | ||||||||||||||
| Stock-based compensation |
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| Shares issued to vendors as compensation |
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| Net loss |
- | ( |
) | ( |
) | |||||||||||||||
| Balance as of September 30, 2022 |
$ | $ | $ | ( |
) | $ | ||||||||||||||
| Additional |
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| Common Stock |
paid in |
Accumulated |
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| Shares |
Amount |
capital |
(Deficit) |
Total |
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| Nine Months Ended September 30, 2022 |
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| Balance as of December 31, 2021 |
$ | $ | $ | ( |
) | $ | ||||||||||||||
| Stock-based compensation |
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| Shares issued to vendors as compensation |
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| Shares issued and warrants exercised in private investment in public entity ("PIPE") |
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| Shares issued in Reflect Systems, Inc. Merger |
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| Warrant repricing events |
- | ( |
) | |||||||||||||||||
| Warrant amendment |
- | |||||||||||||||||||
| Net income |
- | |||||||||||||||||||
| Balance as of September 30, 2022 |
$ | $ | $ | ( |
) | $ | ||||||||||||||
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,” “Creative Realities” 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. ("Allure), a Georgia corporation, Creative Realities Canada, Inc., a Canadian corporation, and Reflect Systems, Inc. ("Reflect"), a Delaware corporation.
Reverse stock split
On March 23, 2023, the Company filed Articles of Amendment with the Secretary of State of the State of Minnesota to effectuate, effective March 27, 2023, a 1-for-
As a result of the reverse stock split, effective 12:01 am on March 27, 2023, every three shares of common stock then-issued and outstanding automatically combined into one share of common stock, with no change in par value per share. No fractional shares were outstanding following the reverse stock split and any fractional shares resulting from the reverse split were rounded up to the nearest whole share of common stock. In connection with the reverse stock split, the total number of shares of common stock authorized for issuance was reduced from
Effective as of the same time as the reverse stock split, the number of shares of common stock available for issuance under the Company's equity compensation plans were reduced in proportion to the reverse stock split. The reverse stock split also resulted in reductions in the number of shares of common stock issuable upon exercising or vesting of equity awards in proportion to the reverse stock split and proportionate increases in exercise price or share-based performance criteria, if any, applicable to such awards. Similarly, the number of shares of common stock issuable upon exercise of outstanding warrants were reduced in proportion to the reverse stock split, and the exercise prices of outstanding warrants were proportionately increased.
Public Offering
On August 17, 2023, the Company priced a "reasonable best efforts" public offering for the sale by the Company of an aggregate of
Liquidity and Financial Condition
In accordance with Accounting Standards Update (“ASU”) No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (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.
At September 30, 2023, the Company has an accumulated deficit of $
Management plans to control resource allocation with respect to new opportunities, implement more aggressive customer deposit protocols, transition portions of its workforce to just-in-time models, and implement other cost cutting initiatives to align cash spend with revenue production to ensure adequate debt servicing; however the supplemental plans have not been fully implemented and the level of improvement to be achieved is uncertain. As a result, the Company has concluded that management's plans do not alleviate substantial doubt about the Company's ability to continue as a going concern.
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 applicable 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, 2022, included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 30, 2023.
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 and Adopted Accounting Pronouncements
Credit Losses. In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-13, Financial Instruments—Credit Losses, which requires entities to estimate expected lifetime credit losses on financial assets and provide expanded disclosures. This ASU replaced the incurred loss methodology with one that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. We adopted ASU No. 2016-13 on January 1, 2023. The adoption of this guidance did not have a material impact on the Company's Condensed Consolidated Financial Statements, as the Company's primary financial assets are its trade accounts receivable, which are short-term financings under industry standard credit and trade terms.
Debt. In August 2020, the FASB issued Accounting Standards Update No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (ASU 2020-06), which simplifies the accounting for convertible instruments by reducing the number of accounting models available for convertible debt instruments. This guidance also eliminates the treasury stock method to calculate diluted earnings per share for convertible instruments and requires the use of the if-converted method. This guidance will be effective for us in the first quarter of 2024 on a full or modified retrospective basis, with early adoption permitted. We do not intend to adopt this standard early, nor do we expect the adoption of this guidance to have a material impact on our Consolidated Financial Statements.
3. 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 client 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 does not have any material extended payment terms as payment is due at or shortly after the time of the sale, ranging between thirty and ninety days. 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 clients. A contract liability is recognized as deferred revenue when the Company invoices clients 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.
4. Allowance for Credit Losses
The allowance for credit losses is the Company's best estimate of the amount of expected lifetime credit losses in the Company's accounts receivable. The Company regularly reviews the adequacy of its allowance for credit losses. The Company estimates losses over the contractual life using assumptions to capture the risk of loss, even if remote, based principally on how long a receivable has been outstanding. Account balances are charged off against the allowance for credit losses after all reasonable means of collection have been exhausted and the potential for recovery is considered remote. Other factors considered include historical write-off experience, current economic conditions, customer credit, and past transaction history with the customer. The allowance for credit losses is included in accounts receivable, net in the accompanying Condensed Consolidated Balance Sheets.
The Company had the following activity for its allowance for credit losses from December 31, 2022 to September 30, 2023:
| Balance as of December 31, 2022 | $ | |||
| Amounts accrued | ||||
| Write-offs charged against the allowance | ( | ) | ||
| Balance as of September 30, 2023 | $ |
5. 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:
| September 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Raw materials, net of reserve | $ | $ | ||||||
| Work-in-process | ||||||||
| Total inventories | $ | $ | ||||||
The reserve for obsolete inventory at September 30, 2023 and December 31, 2022 was $
6. Impairment of Long-Lived Assets
We review the carrying value of all long-lived assets, including property and equipment, for impairment in accordance with 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.
7. Basic and Diluted (Loss)/Earnings per Common Share
Basic and diluted (loss)/earnings per common share for all periods presented is computed using the weighted average number of common shares outstanding. Basic weighted average shares outstanding includes only outstanding common shares. Diluted weighted average shares outstanding includes outstanding common shares and potential dilutive common shares outstanding in accordance with the treasury stock method.
Shares reserved for outstanding stock options, including stock options with performance restricted vesting, and warrants totaling approximately
8. Income Taxes
Deferred income taxes are recognized in the financial statements for the tax consequences in future years of differences between the tax basis of assets and liabilities and their financial reporting amounts based on enacted tax laws and statutory tax rates. Temporary differences arise from a number of matters including, 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
9. 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.
10. Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Our significant estimates include: contingent purchase consideration valuation, allowance for credit losses, valuation allowances related to deferred taxes, the fair value of acquired assets and liabilities, the fair value of liabilities reliant upon the appraised fair value of the Company, valuation of stock-based compensation awards and other assumptions and estimates used to evaluate the recoverability of long-lived assets, goodwill and other intangible assets and the related amortization methods and periods. Actual results could differ from those estimates.
11. Business Combinations
Accounting for acquisitions requires us to recognize separately from goodwill the assets acquired and the liabilities assumed at their acquisition date fair values. Goodwill as of the acquisition date is measured as the excess of consideration transferred over the net acquisition date fair values of the assets acquired and the liabilities assumed. While we use our best estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition date as well as contingent consideration, where applicable, our estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to our consolidated statements of operations.
12. Contingent Consideration
The Company has contingent consideration arrangements related to certain acquisitions to potentially pay additional cash amounts in future periods based on the lack of achievement of certain share price performance goals of our common stock. Such contingent consideration arrangements are recorded at fair value and are classified as liabilities on the acquisition date and are remeasured at each reporting period in accordance with ASC 805-30-35-1 using a Monte Carlo simulation model.
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 the contingent consideration contains inputs which are unobservable and involve management judgment and are considered Level 3 estimates. Additionally, the separately identifiable intangible assets rely on a discounted cash flow model which utilizes inputs including the calculation of the weighted average cost of capital and management’s forecast of future financial performance which are unobservable and involve management judgment and are considered 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 and nine months ended September 30, 2023 and 2022:
| Three Months | Three Months | Nine Months | Nine Months | |||||||||||||
| Ended | Ended | Ended | Ended | |||||||||||||
| September 30, | September 30, | September 30, | September 30, | |||||||||||||
| (in thousands) | 2023 | 2022 | 2023 | 2022 | ||||||||||||
| Hardware | $ | $ | $ | $ | ||||||||||||
| Services: | ||||||||||||||||
| Installation Services | ||||||||||||||||
| Software Development Services | ||||||||||||||||
| Managed Services | ||||||||||||||||
| Media Sales | ||||||||||||||||
| Total Services | ||||||||||||||||
| Total Hardware and Services | $ | $ | $ | $ | ||||||||||||
System hardware sales
System hardware revenue is recognized generally upon shipment of the product or customer acceptance depending upon contractual arrangements with the customer in instances in which the sale of hardware is the sole performance obligation. Shipping charges billed to customers are included in hardware sales and the related shipping costs are included in hardware cost of sales. The cost of freight and shipping to the customer is recognized in cost of sales at the time of transfer of control to the customer. System hardware revenues are classified as “Hardware” within our disaggregated revenue.
Installation services
The Company performs outsourced installation services for customers and recognizes revenue upon completion of the installations. Installation services also includes engineering services performed as part of an installation project.
When system hardware sales include installation services to be performed by the Company, the goods and services in the contract are not distinct, so the arrangement is accounted for as a single performance obligation. Our customers control the work-in-process and can make changes to the design specifications over the contract term. 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. Installation services revenues are classified as “Installation Services” within our disaggregated revenue.
Software design and development services
Software and software license sales are revenue when a fixed fee order 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. Software design and development revenues are classified as “Software Development Services” within our disaggregated revenue.
Software as a service
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
Maintenance and support services
The Company sells support services which include access to technical support personnel for software and hardware troubleshooting. The Company offers a hosting service through our network operations center, or NOC, allowing the ability to monitor and support its customers’ networks 7 days a week, 24 hours a day. These contracts are generally
Maintenance and support fees are based on the level of service provided to end customers, which can range from monitoring the health of a customer’s network to supporting a sophisticated web-portal to managing the end-to-end hardware and software of a digital marketing system. These agreements are renewable by the customer. Rates for maintenance and support, including subsequent renewal rates, are typically established based upon a fee per location, per device, or a specified percentage of net software license fees as set forth in the arrangement. These contracts are 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.
Media sales
Media revenues are derived from selling (i) sponsorship packages, including mobile takeover or physical presence, or (ii) advertising space to customers on digital displays or other outdoor structures, each within physical venues. We generally do not own the physical structures on which we display advertising for our customers but instead sell advertising or sponsorship opportunities on behalf of our media network owners to our brand customers. Media revenue services are recognized either on a straight-line basis over the available hours of advertising during the contracted period, or at the time of an event in the case of sponsorships.
Our media revenue contracts with customers range from weeks to years and billing commences at the beginning of the contract term, with payment generally due within ninety (90) days of billing. For the majority of our contracts, transaction prices are explicitly stated. Any contracts with transaction prices that contain multiple performance obligations are allocated primarily based on a relative standalone selling price basis. Any deferred revenues primarily consist of revenues paid in advance of being earned.
On a contract-by-contract basis, we evaluate whether we should be considered the principal (i.e., report revenues on a gross basis) or an agent (i.e., report revenues on a net basis). We are considered the principal in our arrangements and report revenues on a gross basis, wherein the amounts billed to customers are recorded as revenues and amounts paid to network owners are recorded as expenses. We are considered the principal because we control the advertising space before and after the contract term, are primarily responsible to our customers, and have discretion in pricing. 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 Statement of Operations within Sales and Marketing expenses.
NOTE 5: BUSINESS COMBINATION
On November 12, 2021, the Company and Reflect entered into an Agreement and Plan of Merger (as amended on February 8, 2022 and February 11, 2023, the "Merger Agreement") pursuant to which a direct, wholly owned subsidiary of Creative Realities, CRI Acquisition Corporation, would merge with and into Reflect, with Reflect surviving the merger and becoming our wholly owned subsidiary, which transaction is referred to herein as the “Merger.” On February 17, 2022, the parties consummated the Merger (the "Closing").
Reflect provides digital signage solutions, including software, strategic and media services to a wide range of companies across the retail, financial, hospitality and entertainment, healthcare, and employee communications industries in North America. Reflect offers digital signage platforms, including ReflectView, a platform used by companies to power hundreds of thousands of active digital displays. Through its strategic services, Reflect assists its customers with designing, deploying and optimizing their digital signage networks, and through its media services, Reflect assists customers with monetizing their digital advertising networks.
Subject to the terms and conditions of the Merger Agreement, at the Closing, Reflect stockholders as of the effective time of the Merger collectively received from the Company, in the aggregate, the following Merger consideration: (i) $
The Company may exercise an extension option (the “Extension Option”) to extend the Guarantee Date by six (6) months, from February 17, 2025 to August 17, 2025, if (i) the Extension Threshold Price is greater than or equal to
In connection with the Merger, the Company adopted a Retention Bonus Plan and raised capital to, among other things, pay the cash portion of the Merger consideration. The Retention Bonus Plan is described below.
Retention Bonus Plan
On February 17, 2022, in connection with the Closing, the Company adopted a Retention Bonus Plan, pursuant to which the Company is required to pay to key members of Reflect’s management team an aggregate of $
Upon the resignation of a participant’s employment for “good reason,” or termination of the employment of a participant without “cause,” each as defined in the Retention Bonus Plan, the participant will be fully vested and will receive all cash and shares allocated to such participant under the Retention Bonus Plan. Any amounts unpaid by reason of a lapse in continuous employment or otherwise will be reallocated among the remaining Retention Bonus Plan participants.
Purchase price
The purchase price of Reflect consisted of the following items:
| (in thousands) | Consideration | ||
| Cash consideration for Reflect stock | $ | (1) | |
| Cash consideration for Retention Bonus Plan | (2) | ||
| Common stock issued to Reflect stockholders | (3) | ||
| Common stock issued to Retention Bonus Plan | (4) | ||
| Secured Promissory Note | (5) | ||
| Earnout liability | (6) | ||
| Total consideration | |||
| Vendor deposit with the Company | (7) | ||
| Cash acquired | (8) | ||
| Net consideration transferred | $ | ||
| (1) | Cash consideration for outstanding shares of Reflect capital stock per Merger Agreement. |
| (2) | Cash consideration utilized to fund the Retention Bonus Plan per Merger Agreement. |
| (3) | Company common stock issued in exchange for outstanding shares of Reflect capital stock per Merger Agreement. |
| (4) | Company common stock issued to fund initial issuances under the Retention Bonus Plan per Merger Agreement. |
| (5) | The Secured Promissory Note accrued interest at |
| (6) | Represents an estimate of the fair value of the Guaranteed Consideration as of the Merger, which, if any, is payable on or after February 17, 2025 (subject to the Extension Option), in an amount by which the value of the CREX Shares on such anniversary is less than $ |
| (7) | Prior to the Merger, Reflect had engaged the Company on a project and paid the Company a deposit of $ |
| (8) | Represents the Reflect cash balance acquired at Closing. |
The Company incurred $
The Company accounted for the Merger using the acquisition method of accounting. The final allocation of the purchase price is based on the fair value of assets acquired and liabilities assumed as of February 17, 2022, which included the following:
| (in thousands) | Total | |||
| Accounts receivable | $ | |||
| Inventory | ||||
| Prepaid expenses & other current assets | ||||
| Property and equipment | ||||
| Operating right of use assets | ||||
| Other assets | ||||
| Identified intangible assets: | ||||
| Definite-lived trade names | ||||
| Definite-lived Developed technology | ||||
| Definite-lived Customer relationships | ||||
| Definite-lived Noncompete agreements | ||||
| Goodwill | ||||
| Accounts payable | ( | ) | ||
| Accrued expenses | ( | ) | ||
| Customer deposits | ( | ) | ||
| Deferred revenues | ( | ) | ||
| Current maturities of operating leases | ( | ) | ||
| Long-term obligations under operating leases | ( | ) | ||
| Other liabilities | ( | ) | ||
| Net consideration transferred | $ | |||
The Company engaged a third-party valuation specialist to assist in the identification and calculation of the fair value of those separately identifiable intangible assets.
The Company completed its valuation procedures by asset utilizing the following approaches:
| ● | Customer relationship asset was estimated using the income approach through a discounted cash flow analysis wherein the cash flows will be based on estimates used to price the Merger. Discount rates were benchmarked with reference to the implied rate of return from the Company’s pricing model and the weighted average cost of capital. |
| ● | Trade name asset represents the Reflect brand name as marketed primarily as a full services digital software solution, marketed in numerous verticals with the exception of food service. The Company applied the income approach through an excess earnings analysis to determine the fair value of the trade name asset. The Company applied the income approach through a relief-from-royalty analysis to determine the fair value of this asset. |
| ● | The developed technology assets are primarily comprised of know-how and functionality embedded in Reflect’s proprietary content management applications, which drive currently marketed products and services. The Company applied the income approach through a relief-from-royalty analysis to determine the preliminary fair value of this asset. |
The Company is amortizing the identifiable intangible assets on a straight-line basis over the weighted average lives ranging from
The table below sets forth the valuation and amortization period of identifiable intangible assets:
| (in thousands) | Valuation | Amortization Period (in years) | ||||||
| Identifiable definite-lived intangible assets: | ||||||||
| Trade names | $ | |||||||
| Developed technology | ||||||||
| Noncompete | ||||||||
| Customer relationships | ||||||||
| Total | $ | |||||||
The Company estimated the preliminary fair value of the acquired property and equipment using a combination of the cost and market approaches, depending on the component. The fair value of such property and equipment is $
The excess of the purchase price over the fair value of the tangible net assets and identifiable intangible assets acquired was recorded as goodwill. The factors contributing to the recognition of the amount of goodwill are based on several strategic and synergistic benefits that are expected to be realized from the Merger. These benefits include a comprehensive portfolio of iconic customer brands, complementary product offerings, enhanced national footprint, and attractive synergy opportunities and value creation. None of the goodwill is expected to be deductible for income tax purposes.
NOTE 6: SUPPLEMENTAL CASH FLOW STATEMENT INFORMATION
| Nine Months Ended |
||||||||
| September 30, |
||||||||
| 2023 |
2022 |
|||||||
| Supplemental non-cash investing activities |
||||||||
| Capitalized software in accounts payable |
$ | $ | ||||||
| Property and equipment in accounts payable |
$ | $ | ||||||
| Right-of-use assets obtained in exchange for new finance lease liabilities |
$ | $ | ||||||
| Supplemental non-cash financing activities |
||||||||
| Conversion of liability warrant to equity warrants |
$ | $ | ||||||
| Supplemental disclosure information for cash flow |
||||||||
| Cash paid during the period for: |
||||||||
| Interest |
$ | $ | ||||||
| Operating leases |
$ | $ | ||||||
| Income taxes, net |
$ | $ | ||||||
NOTE 7: INTANGIBLE ASSETS, INCLUDING GOODWILL
Intangible Assets
Intangible assets consisted of the following at September 30, 2023 and December 31, 2022:
| September 30, | December 31, | |||||||||||||||
| 2023 | 2022 | |||||||||||||||
| Gross | Gross | |||||||||||||||
| Carrying | Accumulated | Carrying | Accumulated | |||||||||||||
| Amount | Amortization | Amount | Amortization | |||||||||||||
| Technology platform | $ | $ | $ | $ | ||||||||||||
| Purchased and developed software | ||||||||||||||||
| In-Process internally developed software platform | ||||||||||||||||
| Customer relationships | ||||||||||||||||
| Trademarks and trade names | ||||||||||||||||
| Non-compete | ||||||||||||||||
| Accumulated amortization | ||||||||||||||||
| Net book value of amortizable intangible assets | $ | $ | ||||||||||||||
For the three months ended September 30, 2023 and 2022, amortization of intangible assets charged to operations was $
Goodwill
Goodwill represents the excess of the purchase price over the fair value of net assets acquired. Goodwill is subject to an impairment review at a reporting unit level, on an annual basis at September 30th each fiscal year, when an event occurs, or circumstances change that would indicate potential impairment. The Company has only one reporting unit, and therefore the entire goodwill is allocated to that reporting unit.
The Company assessed the carrying value of goodwill at the reporting unit level based on an estimate of the fair value of its reporting unit. Fair value of the reporting unit was estimated using both (1) a market approach, leveraging recent industry merger and acquisition activity as well as comparable public company information, and (2) a discounted cash flow analyses consisting of various assumptions, including expectations of future cash flows based on projections or forecasts derived from analysis of business prospects and economic or market trends that may occur, specifically, the Company gave significant consideration to actual historic financial results, including revenue growth rates in the current and preceding three years, further informed by known backlog and customer acquisitions. Based on the Company’s assessment, we determined that the fair value of our reporting unit exceeds its carrying value, and accordingly, the goodwill associated with the reporting unit is not considered to be impaired at September 30, 2023.
The Company recognizes that any changes in our actual fourth quarter 2023 or projected 2024 results could potentially have a material impact on our assessment of goodwill impairment. The Company will continue to monitor the actual performance of its operations against expectations and assess indicators of possible impairment. The valuation of goodwill and intangible assets is subject to a high degree of judgment, uncertainty and complexity. Should any indicators of impairment occur in subsequent periods, the Company will be required to perform an analysis in order to determine whether goodwill is impaired.
While our overall business performance has been consistent with our expectations, both before and after the acquisition of Reflect, we believe a significant portion of the decline in our market price relates primarily to both macroeconomic and recent capital transaction factors including: (1) market wide recessionary fears, (2) a lack of comprehension by the markets of the contingent consideration issued in the Merger with Reflect, and (3) the Company’s recent execution of a public offering of
NOTE 8: LOANS PAYABLE
The outstanding debt with detachable warrants, as applicable, are shown in the table below. Further discussion of the debt follows.
| As of September 30, 2023 | ||||||||||||
| Issuance | Maturity | |||||||||||
| Debt Type | Date | Principal | Date | Warrants | Interest Rate Information | |||||||
| A |
| $ |
| 8.0% interest(1) | ||||||||
| B |
|
| 4.6% interest(2) | |||||||||
| C |
|
| 10.0% interest(3) | |||||||||
| Total debt, gross | ||||||||||||
| Debt discount | ( | ) | ||||||||||
| Total debt, net | $ | |||||||||||
| Less current maturities | ( | ) | ||||||||||
| Long term debt | $ | |||||||||||
| As of December 31, 2022 | ||||||||||||
| Issuance | Maturity | |||||||||||
| Debt Type | Date | Principal | Date | Warrants | Interest Rate Information | |||||||
| A |
| $ |
| 8.0% interest(1) | ||||||||
| B |
|
| 0.59% interest(2) | |||||||||
| C |
|
| 10.0% interest(3) | |||||||||
| D |
|
| 12.5% interest(4) | |||||||||
| Total debt, gross | ||||||||||||
| Debt discount | ( | ) | ||||||||||
| Total debt, net | $ | |||||||||||
| Less current maturities | ( | ) | ||||||||||
| Long term debt | $ | |||||||||||
A – Acquisition Term Loan with related party
B – Secured Promissory Note
C – Consolidation Term Loan with related party
D – Term Loan (2022) with related party
| (1) | |
| (2) | Annual interest rate on the outstanding principal increased from |
| (3) | |
| (4) | |
Secured Promissory Note
On February 17, 2022, in connection with the Closing, the Company issued to RSI Exit Corporation (“Stockholders’ Representative”), the representative of Reflect stockholders, a $
The Secured Promissory Note accrued interest at
On February 11, 2023, the Company and the Stockholders’ Representative executed an amendment (the “Note Amendment”) to the Secured Promissory Note. The Note Amendment eliminates the balloon payment, extending the maturity date for a one-year period, to February 17, 2024. During the extended period, the Company will continue to make monthly principal payments of $
Second Amended and Restated Loan and Security Agreement
On February 17, 2022, the Company and its subsidiaries (collectively, the “Borrowers”) refinanced their debt facilities with Slipstream, pursuant to a Second Amended and Restated Credit and Security Agreement (the “Credit Agreement”). The Borrowers include Reflect, which became a wholly owned subsidiary of the Company as a result of the Closing on February 17, 2022. The debt facilities continue to be fully secured by all assets of the Borrowers.
The Credit Agreement also provides that the Company’s outstanding loans from Slipstream at December 31, 2021, consisting of its pre-existing $
In addition to refinancing the existing debt with Slipstream, the Company issued to Slipstream a $
In connection with the Acquisition Term Loan and Consolidation Term Loan warrant coverage, the Company issued to Slipstream a warrant to purchase an aggregate of
In certain circumstances, upon a fundamental transaction of the Company (e.g., a disposal or sale of all or the greater part of the assets or undertaking of the Company, an amalgamation or merger with another company, or implementation of a scheme of arrangement), the holder of the Lender Warrant will have the right to require the Company to repurchase the Lender Warrant at its fair value using a Black Scholes option pricing formula; provided that such holder may not require the Company or its successor entity to repurchase the Lender Warrant for the Black Scholes value in connection with a fundamental transaction that is not approved by the Company’s Board of Directors, and therefore not within the Company’s control.
Effective June 30, 2022, the Company amended the terms of the Lender Warrant to remove the holder’s option to exercise such warrant on a cashless basis utilizing the VWAP of the Company’s common stock on the trading day immediately preceding the date of a notice of cashless exercise in certain circumstances, and remove the condition to exercising such warrant that the Company’s shareholders approve the exercise thereof (which had already been obtained). The amendments to the Lender Warrant also extend the term of such warrants for an additional one year, such that the Lender Warrant will expire on February 17, 2028. The foregoing amendments to the Lender Warrant caused such warrants to be accounted for as equity instruments in the Company’s Consolidated Financial Statements.
On October 31, 2022, the Borrowers and Slipstream amended the Credit Agreement to provide the Borrowers with a $
NOTE 9: COMMITMENTS AND CONTINGENCIES
On August 2, 2019, the Company filed suit in Jefferson Circuit Court, Kentucky, against a supplier of the Company’s wholly owned subsidiary, Allure, for breach of contract, breach of warranty, and negligence with respect to equipment installations performed by such supplier for an Allure customer. On October 10, 2019, the Allure customer that is the basis of our claim above sent a demand to the Company for payment of $
Except as noted above, the Company is not party to any other 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 and nine months ended September 30, 2023, we reported tax (benefit) liability of (
NOTE 11: WARRANTS
A summary of outstanding warrants is included below:
| Warrants | ||||||||||||
| Weighted | ||||||||||||
| Weighted | Average | |||||||||||
| Average | Remaining | |||||||||||
| Exercise | Contractual | |||||||||||
| Amount | Price | Life | ||||||||||
| Balance December 31, 2022 | $ | |||||||||||
| Warrants expired | ( | ) | - | |||||||||
| Balance September 30, 2023 | $ | |||||||||||
On February 3, 2022, the Company entered into a Securities Purchase Agreement with a purchaser (the “Purchaser”), pursuant to which the Company agreed to issue and sell to the Purchaser, in a private placement priced at-the-market under Nasdaq rules, (i)
On February 17, 2022, in connection with the Credit Agreement with Slipstream, the Company issued to Slipstream the Lender Warrants. The Lender Warrants are not exercisable until 180 days after the issuance date. The common shares underlying the Lender Warrants have not yet been registered for resale under the Securities Act of 1933, which provides Slipstream with an option for cashless exercise once the Lender Warrants becomes exercisable until such time as such registration occurs. The Lender Warrants expire years from the date of issuance. The Company evaluated the Lender Warrants and concluded that they do not meet the criteria to be classified within stockholders’ equity. The Lender Warrants include provisions which could result in a different settlement value, for the Lender Warrants depending on the registration status of the underlying shares. Because these conditions are not an input into the pricing of a fixed-for-fixed option on the Company’s ordinary shares, the Lender Warrants are not considered to be indexed to the Company’s own stock. The Company recorded the Lender Warrants as liabilities on the consolidated balance sheets at fair value, with subsequent changes in their respective fair values recognized in the Condensed Consolidated Statements of Operations at each reporting date. At the date of issuance, the Company performed a Black-Scholes valuation of the Lender Warrants, resulting in a fair value of $
On February 17, 2022, in connection with obtaining a waiver of certain restrictions in investment documents between an investor and the Company in order to consummate the financing contemplated by the Credit Agreement, the Company paid consideration to such investor in the form of a warrant (the “Purchaser Warrants”) to purchase
Effective June 30, 2022, the Company amended the terms of the Common Stock Warrants (
The foregoing amendments to the warrants resulted in such warrants to be accounted for as equity instruments on the Company’s Condensed Consolidated Financial Statements as of June 30, 2022. As such, the Company reclassified the warrant liability from noncurrent liabilities to additional paid-in-capital as of June 30, 2022. These amounts are reflected as additional paid-in-capital in the Condensed Consolidated Balance Sheet as of December 31, 2022.
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 | $ | $ | ||||||||||||||||||
| $8.01+ | $ | |||||||||||||||||||
| $ | ||||||||||||||||||||
| Performance 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 | $ | $ | ||||||||||||||||||
| $ | ||||||||||||||||||||
| Market Vesting Options | Weighted | |||||||||||||||||||
| Average | Weighted | Weighted | ||||||||||||||||||
| Remaining | Average | Average | ||||||||||||||||||
| Range of Exercise | Number | Contractual | Exercise | Options | Exercise | |||||||||||||||
| Prices between | Outstanding | Life | Price | Exercisable | Price | |||||||||||||||
| $0.01 - $4.00 | $ | $ | ||||||||||||||||||
| $ | ||||||||||||||||||||
| Performance Vesting | ||||||||||||||||||||||||
| Market Vesting Options | Time Vesting Options | Options | ||||||||||||||||||||||
| Weighted | Weighted | Weighted | ||||||||||||||||||||||
| Average | Average | Average | ||||||||||||||||||||||
| Options | Exercise | Options | Exercise | Options | Exercise | |||||||||||||||||||
| Date/Activity | Outstanding | Price | Outstanding | Price | Outstanding | Price | ||||||||||||||||||
| Balance, December 31, 2022 | $ | $ | ||||||||||||||||||||||
| Granted | ||||||||||||||||||||||||
| Forfeited or expired | ( | ) | ||||||||||||||||||||||
| Balance, September 30, 2023 | $ | |||||||||||||||||||||||
The weighted average remaining contractual life for options exercisable is
Valuation Information for Stock-Based Compensation
For purposes of determining estimated fair value under ASC 718-10, Stock Compensation, the Company computed the estimated fair values of stock options using the Black-Scholes model.
Amendment to Performance Options
On June 1, 2020, Rick Mills, CEO, and Will Logan, CFO, were issued -year options to purchase
On June 15, 2022, the Board approved of an amendment to the Performance Options to provide that the revenue target for the calendar year 2022 set forth therein ($
The Performance Options state that the calculation of EBITDA set forth in the Performance Options shall be calculated in a form consistent with the Company’s 2022 approved budget, which
| (i) | excluded any impact on EBITDA of: |
(a) the accounting treatment (including any “mark-to-market accounting”) of the Company’s warrants or the Guaranteed Consideration (as defined in the Merger Agreement),
(b) non-recurring transaction expenses associated with the Merger and the capital raising financing activities of the Company to effectuate the Merger, and
(c) any write-down or write-off of any Company inventory of Safe Space Solutions products.
(ii) included deductions related to any cash or stock bonuses paid or payable to any employees of the Company for services provided in calendar year 2022 (even if such bonuses are actually paid after calendar year 2022), including bonuses paid pursuant to the terms of the 2022 Cash Bonus Plan (as described below).
The unvested portion of the Performance Options as of December 31, 2022 vested in full effective March 30, 2023 upon confirmation by the Board of Directors of achievement of the performance metrics for the year ended December 31, 2022.
The exercise price of the foregoing options is $
Issuance of Options
On June 15, 2022, Messrs. Mills and Logan received -year options to purchase
| Share Price Target | ||||||||||||||||||||||||||||
| Guaranteed | Total | |||||||||||||||||||||||||||
| Executive | $6.00 | $9.00 | $12.00 | $15.00 | $18.00 | Price | Shares | |||||||||||||||||||||
| Mills Shares Vested | ||||||||||||||||||||||||||||
| Logan Shares Vested | ||||||||||||||||||||||||||||
| Percentage of Shares Vested | % | % | % | % | % | % | ||||||||||||||||||||||
The “Guaranteed Price” has the meaning ascribed to such term in the Merger Agreement, which currently means $
The exercise price of the New Options is $
The fair value of the options on the grant date varied between $
| Risk-free interest rate | % | |||
| Expected term (in years) | ||||
| Expected price volatility | % | |||
| Dividend yield | % |
At September 30, 2023, the Company evaluated the probability of achieving the share price targets in each tranche based, in part, on work performed by the Company’s third party valuation specialist in conjunction with evaluating the equity guarantee contingent liability. As a result of that evaluation of probability, during the three and nine month period ending September 30, 2023 the Company recorded $
Stock Compensation Expense Information
ASC 718-10, Stock Compensation, requires measurement and recognition of compensation expense for all stock-based payments including warrants, stock options, restricted stock grants and stock bonuses based on estimated fair values. Under the Amended and Restated 2006 Equity Incentive Plan, the Company reserved
In October 2014, the Company’s shareholders approved the 2014 Stock Incentive Plan, under which
Employee Awards
Compensation expense recognized for the issuance of stock options to employees for the three and nine months ended September 30, 2023 of $
At September 30, 2023, there was $
Non-Employee Awards
Compensation expense recognized for the issuance of stock options to our Board of Directors, for the three and nine month period ended September 30, 2023 of $
At September 30, 2023, there was approximately $
The Company engages certain consultants to perform services in exchange for Company common stock. Shares issued for services were calculated based on the ten (10) day VWAP for the last ten (10) days during the month of service provided.
During the three and nine months ended September 30, 2023, the Company issued shares issuable in exchange for services in the amount of $
NOTE 13: SIGNIFICANT CUSTOMERS/VENDORS
Significant Customers
We had
We had
We had
Significant Vendors
We had
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion contains various forward-looking statements within the meaning of Section 21E of the Exchange Act. Although we believe that, in making any such statement, our expectations are based on reasonable assumptions, any such statement may be influenced by factors that could cause actual outcomes and results to be materially different from those projected. When used in the following discussion, the words “anticipates,” “believes,” “expects,” “intends,” “plans,” “estimates,” “projects,” should,” “may,” “propose,” and similar expressions (or the negative versions of such words or expressions), as they relate to us or our management, are intended to identify such forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from those anticipated, and many of which are beyond our control. Factors that could cause actual results to differ materially from those anticipated are set forth under the caption “Risk Factors” in the Company’s Form 10-K for the year ended December 31, 2022 as filed with the Securities and Exchange Commission on March 30, 2023.
Our actual results, performance or achievements could differ materially from those expressed in, or implied by, forward-looking statements. Accordingly, we cannot be certain that any of the events anticipated by forward-looking statements will occur or, if any of them do occur, what impact they will have on us. We caution you to keep in mind the cautions and risks described in this document and to refrain from attributing undue certainty to any forward-looking statements, which speak only as of the date of the document in which they appear. We do not undertake to update any forward-looking statement.
Overview
Creative Realities, Inc. (“Creative Realities,” “we,” “us,” or the “Company”) transforms environments through digital solutions by providing innovative digital signage solutions for key market segments and use cases, including:
| ● |
Retail |
| ● |
Entertainment and Sports Venues |
| ● |
Restaurants, including quick-serve restaurants (“QSR”) |
| ● |
Convenience Stores |
| ● |
Financial Services |
| ● |
Automotive |
| ● |
Medical and Healthcare Facilities |
| ● |
Mixed Use Developments |
| ● |
Corporate Communications, Employee Experience |
| ● |
Digital out of Home (DOOH) Advertising Networks |
We serve market-leading companies, so there is a good chance that if you leave your home today to shop, work, eat or play, you will encounter one or more of our digital signage experiences. Our solutions are increasingly visible because we help our enterprise customers achieve a range of business objectives including:
| ● |
Increased brand awareness |
| ● |
Improved customer support |
| ● |
Enhanced employee productivity and satisfaction |
| ● |
Increased revenue and profitability |
| ● |
Improved guest experience |
| ● |
Increased customer/guest engagement |
Through a combination of organically grown platforms and a series of strategic acquisitions, including our acquisition of Reflect in February 2022, the Company assists clients to design, deploy, manage, and monetize their digital signage networks. The Company sources leads and opportunities for its solutions through its digital and content marketing initiatives, close relationships with key industry partners, specifically equipment manufacturers, and the direct efforts of its in-house industry sales experts. Client engagements focus on consultative conversations that ensure the Company’s solutions are positioned to help clients achieve their business objectives in the most cost-effective manner possible.
When comparing Creative Realities to other digital signage providers, our customers value the following competitive advantages:
| ● |
Breadth of solutions – Creative Realities is one of only a few companies in the industry capable of providing the full portfolio of products and services required to implement and run an effective digital signage network. We leverage a ‘single vendor’ approach, providing clients with a one-stop-shop for sourcing digital signage solutions from design through day two services. |
| ● |
Managed labor pool – Unlike most companies in our industry, we have a curated labor pool including thousands of qualified and vetted field technicians available to service clients quickly nationwide. We can meet tight schedules even in exceptionally large deployments and still ensure quality and consistency. |
| ● |
In-house creative resources – We assist clients in repurposing existing content for digital signage experiences or creating new content, an activity for which the Company has won several design awards in recent years. In each instance, our services can be essential in helping clients develop an effective content program. |
| ● |
Network scalability and reliability – Our software as a service (“SaaS”) content management platforms power some of the largest and most complex digital signage networks in North America evidencing our ability to manage enterprise scale projects. This also provides us purchasing power to source products and services for our customers, enabling us to deliver cost effective, reliable and powerful solutions to small and medium size business clients. |
| ● |
Ad management platform – Our customers are increasingly interested in monetizing their digital signage networks through advertising content. However, efficiently scheduling advertising content into digital signage playlists to meet campaign objectives can be a challenging and labor-intensive process. AdLogic, our home-grown, content management-agnostic platform, automates this process, allowing network owners to capture more revenue with less expense. |
| ● |
Media sales – Few, if any other digital signage solution providers, can offer their clients media sales as a service. We have in-house media sales expertise to elevate conversations with clients interested in better understanding network monetization. We believe this meaningful differentiation in the sales process provides an additional revenue stream to Creative Realities compared to our competitors. |
| ● |
Market sector expertise – Creative Realities has in-house experts in key market segments such as automotive, retail, quick-serve restaurants (QSR), convenience stores, and Digital Out of Home (DOOH) advertising. Our expertise in these business segments enables our teams to provide meaningful business conversations and offer tailored solutions with prospects and customers to their unique business objectives. These experts build industry relationships and create thought leadership that drives lead flow and new opportunities for our business. |
| ● |
Logistics – Implementing a large digital signage project can be a logistics nightmare that can stall an initiative even before deployment. Our expertise in logistics improves deployment efficiency, reduces delays and problems, and saves customers time and money. |
| ● |
Technical support – Digital signage networks present unique challenges for corporate IT departments. Creative Realities helps simplify and improve end user support by leveraging our own Network Operations Center (“NOC”) in Louisville, Kentucky. The NOC resolves many issues remotely and when field support is required, it can be dispatched from the NOC, leveraging our managed labor pool to resolve customer issues quickly and effectively. |
| ● |
Integrations and Application Development – The future of digital signage is not still images and videos on a screen. Interactive applications and integrations with other data sources will dominate the future. From social media feeds to corporate data stores to Point of Sale (“POS”) systems, our proven ability to build scalable applications and integrations is a key advantage clients can leverage to deliver more compelling and engaging experiences for their customers. |
| ● |
Hardware support – A number of digital signage providers sell a proprietary media player or align themselves with just one operating system. We utilize a range of media players including Windows, Android and BrightSign to provide clients the flexibility they need to select the appropriate hardware for any application knowing the entire network can still be served by a single digital signage platform, reducing complexity and improving the productivity of their teams. |
The three primary sources of revenue for the Company are:
| ● |
Hardware sales from reselling digital signage hardware from original equipment manufacturers such as Samsung and BrightSign. |
| ● |
Services revenue from helping customers design, deploy and manage their digital signage network, including: |
| o |
Hardware system design/engineering |
| o |
Hardware installation |
| o |
Content development |
| o |
Content scheduling |
| o |
Post-deployment network and field support |
| o |
Media sales |
| ● |
Recurring subscription licensing and support revenue from our digital signage software platforms, which are generally sold via a SaaS model. These include: |
| o |
ReflectView, the Company’s core digital signage platform for most applications, scalable and cost effective from 10 to 100,000+ devices |
| o |
Reflect Xperience, a web-based interface that allows customers to give content scheduling access to local users via the web or mobile devices, while still maintaining centralized programming control |
| o |
Reflect AdLogic, the Company’s ad management platform for digital signage networks, which presently delivers approximately 50 million ads daily |
| o |
Reflect Clarity, the Company’s menu board solution, which has become a market leader for a range of restaurant and convenience store applications |
| o |
Reflect Zero Touch, which allows customers to turn any screen into an interactive experience by allowing guests to engage using their mobile device |
| o |
iShowroomProX, an omni-channel digital sales support platform targeted at original equipment manufacturers in the transportation sector, which integrates with dozens of key data services including dealer inventory at the VIN level |
| o |
OSx+, a digital VIN-level checklist used to assist in the tracking and delivery of new vehicles in the transportation sector, providing measurable lift in customer satisfaction scores and connected vehicle enrollments and subscription activations. |
While hardware sales and support services revenues can fluctuate more significantly year over year based on new, large-scale network deployments, the Company expects to see continuous growth in recurring SaaS revenue for the foreseeable future as digital signage adoption/utilization continues to expand across the vertical markets we serve.
Our Expenses
Our expenses are primarily comprised of three categories: sales and marketing, research and development, and general and administrative. Sales and marketing expenses include salaries and benefits for our sales, business development solution management and marketing personnel, and commissions paid on sales. This category also includes amounts spent on marketing networking events, promotional materials, hardware and software to prospective new customers, including those expenses incurred in trade shows and product demonstrations, and other related expenses. Our research and development expenses represent the salaries and benefits of those individuals who develop and maintain our proprietary software platforms and other software applications we design and sell to our customers. Our general and administrative expenses consist of corporate overhead, including administrative salaries, real property lease payments, salaries and benefits for our corporate officers and other expenses such as legal and accounting fees.
Recent Developments
Reverse stock split
On March 23, 2023, the Company filed Articles of Amendment with the Secretary of State of the State of Minnesota to effectuate, effective March 27, 2023, a 1-for-3 stock split of the shares of the Company's common stock, par value $0.01 per share.
As a result of the reverse stock split, effective 12:01 am on March 27, 2023, every three shares of common stock then-issued and outstanding automatically combined into one share of common stock, with no change in par value per share. No fractional shares were outstanding following the reverse stock split and any fractional shares resulting from the reverse split were rounded up to the nearest whole share of common stock. In connection with the reverse stock split, the total number of shares of common stock authorized for issuance was reduced from 200,000,000 shares to 66,666,666 shares in proportion to the reverse stock split.
Effective as of the same time as the reverse stock split, the number of shares of common stock available for issuance under the Company's equity compensation plans were reduced in proportion to the reverse stock split. The reverse stock split also resulted in the number of shares of shares of common stock issuable upon exercise of outstanding warrants, or the exercise or vesting of equity awards, in proportion to the reverse stock split and caused a proportionate increase in exercise price or share-based performance criteria, where applicable.
Rejection of unsolicited offer
On February 2, 2023, we received an unsolicited proposal from Pegasus Capital Advisors, L.P., on behalf of itself and certain of its affiliates, including Slipstream (collectively, “Pegasus”), to acquire all of the outstanding shares of common stock of the Company that are not owned by Pegasus for a purchase price of $0.83 per share (or, as a result of our recent reverse stock split, $2.49 per share) in cash. Pegasus is the beneficial owner of our common stock owned of record by Slipstream. The Special Committee of the Company’s Board of Directors (the “Special Committee”) has concluded that such proposal undervalues the Company based on the Special Committee’s views of the intrinsic value of the Company’s existing business and current and future prospects, and is not in the best interests of the Company’s existing shareholders. Consequently, the Special Committee has advised Pegasus that it has rejected the proposal.
On May 1, 2023, we received a subsequent unsolicited proposal from Pegasus to acquire all of the outstanding shares of common stock of the Company that are not owned by Pegasus for a purchase price of $2.85 per share in cash. The Special Committee has concluded that such proposal undervalues the Company based on the Special Committee’s views of the intrinsic value of the Company’s existing business and current and future prospects, and is not in the best interests of the Company’s existing shareholders. Consequently, the Special Committee has advised Pegasus that it has rejected the proposal.
Please see Note 5 Business Combinations, Note 8 Loans Payable, Note 11 Warrants, and Note 12 Stock-based Compensation to the Company’s Condensed Consolidated Financial Statements contained in this Report for a description of recent developments of the Company that occurred during, and subsequent to, the three and nine months ended September 30, 2023.
Critical Accounting Policies and Estimates
The Company’s significant accounting policies are described in Note 2 Summary of Significant Accounting Policies of the Company’s Condensed Consolidated Financial Statements included elsewhere in this Report. The Company’s Condensed Consolidated Financial Statements are prepared in conformity with accounting principles generally accepted in the United States. Certain accounting policies involve significant judgments, assumptions, and estimates by management that could have a material impact on the carrying value of certain assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Our actual results could differ from those estimates.
Results of Operations
Note: All dollar amounts reported in Results of Operations are in thousands, except share and per-share information.
Three Months Ended September 30, 2023 Compared to Three Months Ended September 30, 2022
The tables presented below compare our results of operations and present the results for each period and the change in those results from one period to another in both dollars and percentage change.
| For the three months |
||||||||||||||||
| ended September 30, |
Change |
|||||||||||||||
| 2023 |
2022 |
$ |
% |
|||||||||||||
| Sales |
$ | 11,568 | $ | 11,180 | $ | 388 | 3 | % | ||||||||
| Cost of sales |
6,265 | 6,666 | $ | (401 | ) | 6 | % | |||||||||
| Gross profit |
5,303 | 4,514 | 789 | 17 | % | |||||||||||
| Sales and marketing expenses |
1,301 | 718 | 583 | 81 | % | |||||||||||
| Research and development expenses |
393 | 238 | 155 | 65 | % | |||||||||||
| General and administrative expenses |
2,632 | 2,847 | (215 | ) | 8 | % | ||||||||||
| Depreciation and amortization expense |
817 | 885 | (68 | ) | 8 | % | ||||||||||
| Deal and transaction expense |
- | 110 | (110 | ) | 100 | % | ||||||||||
| Total operating expenses |
5,143 | 4,798 | 345 | 7 | % | |||||||||||
| Operating income (loss) |
160 | (284 | ) | 444 | 156 | % | ||||||||||
| Other income/(expenses): |
||||||||||||||||
| Interest expense |
(734 | ) | (757 | ) | 23 | 3 | % | |||||||||
| Change in fair value of equity guarantee |
(1,369 | ) | 442 | (1,811 | ) | 410 | % | |||||||||
| Gain on settlement of obligations |
- | 37 | (37 | ) | 100 | % | ||||||||||
| Other expense |
(3 | ) | (2 | ) | (1 | ) | 50 | % | ||||||||
| Total other income/(expenses) |
(2,106 | ) | (280 | ) | (1,826 | ) | 652 | % | ||||||||
| Net loss income before income taxes |
(1,946 | ) | (564 | ) | (1,382 | ) | 245 | % | ||||||||
| Benefit from income taxes |
15 | 10 | 5 | 50 | % | |||||||||||
| Net loss |
$ | (1,931 | ) | $ | (554 | ) | (1,377 | ) | 249 | % | ||||||
Sales
Sales were $11,568, representing an increase of $388, or 3%, as compared to the same period in 2022. Hardware revenues were $4,847, a decrease of $168, or 3%, as compared to the prior year, of which approximately $3.0 million were earned from customers new to the Company in 2023. Services and other revenues were $6,721, an increase of $556, or 9%, driven by year over year increases of (1) $543 in media sales attributable to the addition of sales resources and restructuring of third party selling contracts to expand its access to such agents, and (2) $420 in managed services revenue as a result of increasing SaaS license counts which drive annual recurring revenue on a per device per month basis. These increases in services revenue were partially offset by a $505 decrease in installation services revenue as deployment of hardware sold during the quarter associated with multiple advertising networks did not begin installation activities until the fourth quarter of 2023.
Gross Profit
Gross profit increased $789, or 17% driven by enhanced margins on hardware revenues and an increase in services revenue.
Gross profit margin increased to 46% from 40% driven by (1) favorable revenue mix during the period as managed services, which includes higher margin SaaS and other services revenues, increased to 37% of total revenue as compared to 35% of total revenues in the three months ended September 30, 2022, and (2) a 6% margin expansion associated with hardware revenues generated in the current year primarily generated from sales of custom manufactured kiosks purchased for deployment of an advertising network.
Sales and Marketing Expenses
Sales and marketing expenses generally include the salaries, taxes, and benefits of our sales and marketing personnel, as well as trade show activities, travel, and other related sales and marketing costs. Sales and marketing expenses increased by $583, or 81%, driven primarily by the Company’s enhanced investments into sales and marketing activities. Following the Merger, the Company adopted certain tools, technology, and processes – particularly with respect to lead generation and brand marketing – that were historically undercapitalized by the Company and have since accelerated new customer acquisition. Through completion of the Merger, the Company also acquired a media sales business unit that serves to monetize customer networks via the direct sale of advertising to be displayed on digital advertising networks owned by those customers. This business utilizes internal and third-party sales agents - the salaries and commissions of which are included within Sales and Marketing Expense within the Condensed Consolidated Statement of Operations.
Research and Development Expenses
Research and development expenses generally include personnel and development tools costs associated with the continued development of the Company’s content management systems and other related application development. The Company capitalizes certain of these expenses and amortizes those costs through the Condensed Consolidated Statement of Operations on a straight-line basis over the economic useful life of the software feature or functionality. Research and development expenses increased by $155, or 65%, for the three month period ended September 30, 2023 as compared to the same period in 2022 driven primarily by incremental headcount added via completion of the Merger on February 17, 2022 and a higher rate of bug and maintenance work as compared to capitalized activities during the quarter ended September 30, 2023. Through the Merger, we acquired a fully staffed, experienced software development team and elected to keep that team in-tact, particularly given current competitive employment market conditions with respect to talented software engineers. We integrated the development teams which has enhanced speed to market on new feature and functionality development activities.
General and Administrative Expenses
General and administrative expenses decreased $215, or 8% during the three months ended September 30, 2023 as compared to the same period in 2022 driven by a decrease of $492 in stock compensation expense as outstanding performance awards were fully expensed as of December 31, 2022. This decrease was partially offset by increased personnel costs as a result of higher headcount following the Merger and scaled up operations in response to an increase in customer acquisition and associated planned deployments.
Depreciation and Amortization Expenses
Depreciation and amortization expenses were effectively flat, decreasing $68, or 8%, in the three months ended September 30, 2023 compared to the same period in 2022. The Company currently expects depreciation and amortization expense to be approximately $800 per quarter for the remainder of 2023.
Interest Expense
See Note 8 Loans Payable to the Condensed Consolidated Financial Statements for a discussion of the Company’s debt and related interest expense obligations.
Changes in fair value of equity guarantee
The Company has contingent consideration arrangements related to the Merger to potentially pay additional cash amounts in future periods based on the lack of achievement of certain share price performance goals of our common stock. Such contingent consideration arrangements are recorded at fair value and are classified as liabilities on the acquisition date and are remeasured at each reporting period in accordance with ASC 805-30-35-1 using a Monte Carlo simulation model. The change in the period represents the mark-to-market adjustment as of the balance sheet dates.
Nine Months Ended September 30, 2023 Compared to Nine Months Ended September 30, 2022
The tables presented below compare our results of operations and present the results for each period and the change in those results from one period to another in both dollars and percentage change.
| For the Nine Months |
||||||||||||||||
| Ended September 30, |
Change |
|||||||||||||||
| 2023 |
2022 |
$ |
% |
|||||||||||||
| Sales |
$ | 30,708 | $ | 32,860 | $ | (2,152 | ) | 7 | % | |||||||
| Cost of sales |
16,018 | 19,792 | (3,774 | ) | 19 | % | ||||||||||
| Gross profit |
14,690 | 13,068 | 1,622 | 12 | % | |||||||||||
| Sales and marketing expenses |
3,666 | 2,572 | 1,094 | 43 | % | |||||||||||
| Research and development expenses |
1,136 | 897 | 239 | 27 | % | |||||||||||
| General and administrative expenses |
8,125 | 8,269 | (144 | ) | 2 | % | ||||||||||
| Depreciation and amortization expense |
2,393 | 2,060 | 333 | 16 | % | |||||||||||
| Deal and transaction expenses |
- | 538 | (538 | ) | 100 | % | ||||||||||
| Total operating expenses |
15,320 | 14,336 | 984 | 7 | % | |||||||||||
| Operating loss |
(630 | ) | (1,268 | ) | 638 | 50 | % | |||||||||
| Other income/(expenses): |
||||||||||||||||
| Interest expense |
(2,324 | ) | (1,956 | ) | (368 | ) | 19 | % | ||||||||
| Change in fair value of warrant liability |
- | 7,902 | (7,902 | ) | 100 | % | ||||||||||
| Change in fair value of equity guarantee |
(1,461 | ) | 369 | (1,830 | ) | 496 | % | |||||||||
| Loss on debt waiver consent |
- | (1,212 | ) | 1,212 | 100 | % | ||||||||||
| Loss on warrant amendment |
- | (345 | ) | 345 | 100 | % | ||||||||||
| Loss on settlement of debt |
- | (237 | ) | 237 | 100 | % | ||||||||||
| Other income |
132 | 3 | 129 | 4300 | % | |||||||||||
| Total other income/(expenses) |
(3,653 | ) | 4,524 | (8,177 | ) | 181 | % | |||||||||
| Net (loss) income before income taxes |
(4,283 | ) | 3,256 | (7,539 | ) | 232 | % | |||||||||
| Provision from income taxes |
(73 | ) | (46 | ) | (27 | ) | 59 | % | ||||||||
| Net (loss) income |
$ | (4,356 | ) | $ | 3,210 | (7,566 | ) | 236 | % | |||||||
Sales
Sales were $30,708, representing a decrease of $2,152, or 7%, as compared to the same period in 2022. Hardware revenues were $12,606 for the nine month period ended September 30, 2023 as compared to $17,141 for the nine month period ended September 30, 2022, a decrease of $4,535, or 26%, with prior year results driven by two customers executing cyclical refreshes of their digital infrastructure throughout their entire geographic footprint. Hardware revenues generated in the current year were driven by new standard existing customer expansion activities and supplemented by new customer deployments, with no existing customers executing a similar large scale refresh during the nine months ended September 30, 2023. Those refresh activities represented $8,919 in incremental hardware revenue during the nine months ended September 30, 2022.
Services and other revenues were $18,102 for the nine month period ended September 30, 2023, an increase of $2,383, or 15%, driven by growth in managed services revenue. Managed services revenue, which includes both SaaS and help desk technical subscription services, as well as non-contracted recurring content management services, were $12,227 in the nine months ended September 30, 2023 as compared to $10,435 in the same period in 2022, driven by expansion in the Company's SaaS license counts, which drive annual recurring revenue on a per device per month basis, and the inclusion of Reflect revenue for a full nine months in the current year as compared to approximately seven and one half months during the nine months ended September 30, 2022 as a result of the Merger closing on February 17, 2022. This represents a year-over-year growth rate of 17% in our higher margin, primarily subscription-based, managed services revenue.
Gross Profit
Gross profit increased by $1,622, or 12% during the nine months ended September 30, 2023 as compared to the same period in 2022 driven by improvements in hardware gross margins as a result of a significant deployment with gross margin of approximately 25%.
Gross profit margin increased to 48% during the nine months ended September 30, 2023, from 40% in the same period in 2022 driven by (1) increased gross margin on hardware sales, partially offset by a reduction in total hardware sales, and (2) an increase in services revenue driven by expansion in SaaS license counts and associated subscription license revenue.
Sales and Marketing Expenses
Sales and marketing expenses generally include the salaries, taxes, and benefits of our sales and marketing personnel, as well as trade show activities, travel, and other related sales and marketing costs. Sales and marketing expenses increased by $1,094, or 43%, driven primarily by (1) the acquisition of Reflect via the Merger on February 17, 2022, and (2) the Company’s enhanced investments into sales and marketing activities. Following the Merger, the Company adopted certain tools, technology, and processes – particularly with respect to lead generation and brand marketing – that were historically undercapitalized by the Company and have since accelerated new customer acquisition. Through completion of the Merger, the Company also acquired a media sales business unit that serves to monetize customer networks via the direct sale of advertising to be displayed on digital advertising networks owned by those customers. This business utilizes internal and third party sales agents - the salaries and commissions of which are included within Sales and Marketing Expense within the Condensed Consolidated Statement of Operations. We expect the sales and marketing expenses of the Company for the nine months ended September 30, 2023 to adequately reflect the normal spend in these areas in future reporting periods.
Research and Development Expenses
Research and development expenses generally include personnel and development tools costs associated with the continued development of the Company’s content management systems and other related application development. The Company capitalizes certain of these expenses and amortizes those costs through the Condensed Consolidated Statement of Operations on a straight-line basis over the economic useful life of the software feature or functionality. Research and development expenses increased by $239, or 27%, for the nine month period ended September 30, 2023 as compared to the same period in 2022 driven primarily by incremental headcount added via completion of the Merger on February 17, 2022. Through the Merger, we acquired a fully staffed, experienced software development team and elected to keep that team in-tact, particularly given current competitive employment market conditions with respect to talented software engineers. We integrated the development teams which has enhanced speed to market on new feature and functionality development activities.
General and Administrative Expenses
General and administrative expenses were effectively flat, decreasing $144, or 2%. As compared to the nine months ended September 30, 2022, the Company experienced decreases of (1) $949 in stock compensation expense as outstanding performance awards were fully expensed as of December 31, 2022, and (2) reductions in certain expenses following completion of integration activities/projects completed during 2022 following the Reflect Merger (including but not limited to consolidation of CMS tools, cloud hosting environments, IT tools) that materialized through the balance of 2022. These decreases were partially offset by increases of (1) $594 in increased personnel costs as the Company scaled up operations in response to an increase in customer acquisitions, (2) $196 in legal expenses associated with the Company's establishment of a Special Committee of the Board of Directors to consider and respond to an unsolicited proposal of a Company shareholder to acquire certain outstanding shares of common stock of the Company, as well as settlement of two open litigation matters during the period, and (3) other operating costs, each primarily associated with the consolidation of Reflect for nine months in 2023, as compared to reporting consolidation of Reflect for only 226 days during the nine months ended September 30, 2022 as a result of completion of the Reflect Merger on February 17, 2022.
Depreciation and amortization expenses
Depreciation and amortization expenses increased $333, or 16%, in the nine months ended September 30, 2023 compared to the same period in 2022, driven primarily by incremental amortization expense generated from the addition of $17,160 in amortizing intangible assets on February 17, 2022, as a result of the Merger.
Interest expense
See Note 8 Loans Payable to the Condensed Consolidated Financial Statements for a discussion of the Company’s debt and related interest expense obligations.
Changes in fair value of warrant liability; Loss on warrant amendment
During the nine month period ended September 30, 2022, the Company recorded a gain of $7,902 as the result of assessing the fair value of warrant liabilities associated with the Company’s issuance of warrants in its debt and equity offerings completed in February 2022 to finance the Merger. These warrants were initially assessed at fair value through Black Scholes calculation, with changes in fair value recognized at each period end.
Effective June 30, 2022, the Company amended the terms of certain warrants previously issued to its creditor and an investor, which removed the holder’s option to exercise such warrants on a cashless basis utilizing the VWAP of the Company’s common stock on the trading day immediately preceding the date of a notice of cashless exercise in certain circumstances, and removed the condition to exercising such warrants that the Company’s shareholders approve the exercise thereof (which had already been obtained). The amendments to the warrants extended the term of such warrants for an additional one year (collectively, the "Warrant Amendment"). The foregoing amendments to the warrants resulted in such warrants to be accounted for as equity instruments in the Company’s Condensed Consolidated Financial Statements.
Changes in fair value of equity guarantee
The Company has contingent consideration arrangements related to the Merger to potentially pay additional cash amounts in future periods based on the lack of achievement of certain share price performance goals of our common stock. Such contingent consideration arrangements are recorded at fair value and are classified as liabilities on the acquisition date and are remeasured at each reporting period in accordance with ASC 805-30-35-1 using a Monte Carlo simulation model. The change in the period represents the mark-to-market adjustment as of the balance sheet dates.
Loss on debt waiver consent
During the nine months ended September 30, 2022, in connection with obtaining a waiver of certain restrictions in investment documents between an investor and the Company in order to consummate the financing contemplated by the Company's credit agreement with Slipstream, the Company paid consideration to such investor in the form of the Purchaser Warrant to purchase 466,667 shares of Company common stock in an at-the-market offering under Nasdaq rules. The number of shares of Company common stock subject to the Purchaser Warrant was equal to the waiver fee ($175) divided by $0.375 per share. The exercise price of the Purchaser Warrant is $4.23 per share, and the Purchaser Warrant became exercisable on August 17, 2022. The Purchaser Warrant expires six years from the date of issuance following execution of the Warrant Amendment. At the date of issuance, the Company performed a Black-Scholes valuation of the Purchaser Warrant, resulting in a fair value of $2.5968 per warrant. In recording the warrant liability, the Company recorded an expense in the Condensed Consolidated Statement of Operations associated with the issuance of the Purchaser Warrant of $1,212 for the nine months ended September 30, 2022. No such transactions occurred in the current period.
Loss on extinguishment of debt
During the nine months ended September 30, 2022, the Company refinanced its debt facilities with Slipstream. The Company assessed the combination of the pre-existing senior secured term loan and secured convertible loan in accordance with ASC 470 Debt and determined the transaction should be accounted for as an extinguishment, in part as the Consolidation Term Loan eliminated a substantive conversion feature. In aggregate the Company recorded a loss on extinguishment of $295, primarily associated with the write-off of pre-existing debt discounts. No such transactions occurred in the current period.
Summary Unaudited Quarterly Financial Information
The following represents unaudited financial information derived from the Company’s quarterly financial statements:
| Quarters Ended |
||||||||||||||||||||
| September 30 |
June 30 |
March 31 |
December 31 |
September 30 |
||||||||||||||||
| Quarters ended |
2023 |
2023 |
2023 |
2022 |
2022 |
|||||||||||||||
| GAAP net loss |
$ | (1,931 | ) | $ | (1,425 | ) | $ | (1,000 | ) | $ | (1,334 | ) | $ | (554 | ) | |||||
| Interest expense: |
||||||||||||||||||||
| Amortization of debt discount |
363 | 358 | 356 | 364 | 363 | |||||||||||||||
| Other interest, net |
371 | 429 | 447 | 423 | 394 | |||||||||||||||
| Depreciation/amortization: |
||||||||||||||||||||
| Amortization of intangible assets |
766 | 754 | 754 | 743 | 848 | |||||||||||||||
| Amortization of employee share-based awards |
3 | 151 | 225 | 448 | 456 | |||||||||||||||
| Depreciation of property & equipment |
50 | 43 | 25 | 30 | 37 | |||||||||||||||
| Income tax (benefit) expense |
(15 | ) | 45 | 43 | 33 | (10 | ) | |||||||||||||
| EBITDA |
$ | (393 | ) | $ | 355 | $ | 850 | $ | 707 | $ | 1,534 | |||||||||
| Adjustments |
||||||||||||||||||||
| Gain on settlement of obligations |
- | - | - | - | (37 | ) | ||||||||||||||
| Loss (Gain) on fair value of equity guarantee |
1,369 | 16 | 76 | (705 | ) | (442 | ) | |||||||||||||
| Disposal of Safe Space Solutions inventory |
- | - | - | 909 | - | |||||||||||||||
| Deal and transaction expenses |
- | - | - | 54 | 110 | |||||||||||||||
| Other expense (income) |
3 | (123 | ) | (12 | ) | 7 | 2 | |||||||||||||
| Stock-based compensation – Director grants |
43 | 43 | 43 | 56 | 82 | |||||||||||||||
| Adjusted EBITDA |
$ | 1,022 | $ | 291 | 957 | 1,028 | 1,249 | |||||||||||||
Liquidity and Capital Resources
See Note 1 Nature of Organization and Operations to the accompanying Condensed Consolidated Financial Statements for a discussion of liquidity and financial resources.
Operating Activities
The net cash provided by operating activities during the nine months ended September 30, 2023 was $8,306 compared to net cash used in operating activities of $1,050 for the same period in 2022. Cash provided by operating activities in the nine month period ending September 30, 2023, was driven by a reduction in accounts receivable and prepaid assets of $2,080 and $859, respectively. In addition, deferred revenue and customer deposits increased $2,284 and $1,054 respectively.
Investing Activities
Net cash used in investing activities during the nine months ended September 30, 2023 was $3,138 compared to $20,268 during the same period in 2022. The use of cash in the prior year was driven by completion of the Merger. We currently do not have any material commitments for capital expenditures as of September 30, 2023; however, we anticipate a reduction in capital expenditures entering 2024 as we complete the modernization and internationalization of our automotive platform in 2023 in an effort to capture incremental SaaS-based revenue contracts.
Financing Activities
Net cash provided by financing activities during the nine months ended September 30, 2023 was $1,575 compared to net cash provided by financing activities of $19,254 for the same period in 2022. The change is the result of the Company’s completion of equity and debt financing in the first quarter of 2022 to facilitate the Merger, which provided net cash of $10,109 and $9,868, respectively. Net cash provided by financing activities during the nine month period ended September 30, 2023, is primarily the result of a common stock offering completed in August 2023, generating cash of $5,454, net of offering expenses, partially offset by repayments made on the Consolidation Term Loan, Secured Promissory Note and Term Loan (2022) of $930, $935 and $2,000, respectively.
Off-Balance Sheet Arrangements
During the three and nine months ended September 30, 2023, we did not engage in any off-balance sheet arrangements set forth in Item 303(a)(4) of Regulation S-K.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
An evaluation was performed under the supervision and with the participation of our management, including our Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial officer), of the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (“Exchange Act”), as of the end of the period covered by this report. Based on that evaluation, our management, including our Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures were effective as of September 30, 2023, and designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the quarter ended September 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 1A. Risk Factors
As a smaller reporting company, we are not required to provide the information required by this Item; however, the discussion of our business and operations should be read together with the Risk Factors set forth in our Annual Report on Form 10-K filed with the SEC on March 30, 2023 and subsequent filings made with the SEC. Such risks and uncertainties have the potential to affect our business, financial condition, results of operations, cash flow, strategies or prospects in a material and adverse manner.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
Rule 10b5-1 Trading Plans
During the quarter ended September 30, 2023, none of the Company’s directors or executive officers adopted or terminated any contract, instruction or written plan for the purchase or sale of Company securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any “non-Rule 10b5-1 trading arrangement."
Resignation of Dennis McGill
On November 8, 2023, Dennis McGill resigned as Chairman and as a director of the Company effective immediately. Mr. McGill resigned for family reasons, and did not resign as a result of any matter relating to the Company's operations, policies or practices. As a result of Mr. McGill’s resignation, Richard Mills has been appointed to serve as Chairman of the Board of Directors. Following Mr. McGill’s resignation, the Board of Directors approved a reduction in the size of the Board to four directors.
In consideration of Mr. McGill’s service to the Company, the Board accelerated the vesting of 25 options previously issued to Mr. McGill, that would have vested on November 17, 2023.
2023 Stock Incentive Plan
In April 2023, the Company’s 2014 Stock Incentive Plan, as amended, expired by its terms (other than with respect to outstanding options issued under the 2014 Stock Incentive Plan). On November 8, 2023, our Board of Directors approved a 2023 Stock Incentive Plan (the “Plan”), pursuant to which 1,500,000 shares of common stock are reserved for issuance under the Plan to key employees, executives, consultants, and other individuals who provide services to the Company. The following summary of the Plan does not purport to be a complete description and is qualified in its entirety by the specific language of the Plan, a copy of which is attached to this Quarterly Report on Form 10-Q as Exhibit 10.1.
Plan Summary
General. The purpose of the Plan is to increase shareholder value and to advance the interests of the Company by furnishing a variety of economic incentives designed to attract, retain and motivate employees, certain key consultants, independent contractors and directors of the Company. The Plan will be administered by a stock option or Compensation Committee of the Board of Directors, or if no such committee exists, by the entire Board of Directors.
The Compensation Committee may grant incentives to employees (including officers) or our subsidiaries, members of the Board of Directors, and consultants or other independent contractors who provide services to us or our subsidiaries, in the following forms:
| ● |
incentive stock options and non-statutory stock options; |
| ● |
stock appreciation rights; |
| ● |
stock awards; |
| ● |
restricted stock; |
| ● |
restricted stock units; and |
| ● |
performance shares. |
In addition our Chief Executive Officer or Chief Financial Officer may, on a discretionary basis and without review or approval by the Compensation Committee, grant stock options to our new employees who are not officers of the Company. Such discretionary grants shall not exceed, in the aggregate, incentives that the Board of Directors or Compensation Committee has allocated for such purpose.
Shares Subject to Plan. We may issue up to 1,500,000 shares of common stock under the Plan. If an incentive granted under the Plan expires or is terminated or canceled unexercised as to any shares of common stock or forfeited or reacquired by us pursuant to rights reserved upon issuance thereof, we may again issue such shares under the Plan pursuant to another incentive.
Description of Incentives
Stock Options. Stock options may be granted to eligible individuals to purchase shares of common stock from the Company. The Plan confers on the Compensation Committee the discretion, with respect to any such stock option, to determine the term of each option, the time or times during its term when the option becomes exercisable and the number and purchase price of the shares subject to the option. Nevertheless, the term of each option shall not exceed ten years and one day from the grant date. The option price per share for stock options may not be less than the fair market value of the common stock on the grant date. We must grant all stock options within ten years from the date of the Plan’s adoption by the Board of Directors.
Incentive Stock Options. The grant of incentive stock options is intended to comply with Section 422 of the U.S. Internal Revenue Code of 1986, as amended from time to time (the “Code”). The fair market value of incentive stock options granted to eligible individuals shall not, as of the grant date, exceed $100,000. Additionally, if incentive stock options are granted to an eligible individual who, at the time such option is granted, would own (as such term is described in Code Section 422) stock possessing more than 10% of the total combined voting power of the Company, the option price for such incentive stock option cannot be less than 110% of the fair market value of the common stock, and such incentive stock options will expire no later than five years after the grant date.
Stock Appreciation Rights. A stock appreciation right is a right to receive, without payment to the Company, a number of shares of common stock, the amount of which is determined by dividing (a) the number of shares of common stock as to which the stock appreciation right is exercised multiplied by the amount of the appreciation in such shares — i.e., the amount by which the fair market value of the shares of common stock subject to the stock appreciation right on the exercise date exceeds (1) in the case of a stock appreciation right related to a stock option, the purchase price of the shares of common stock under the stock option or (2) in the case of an stock appreciation right granted alone, without reference to a related stock option, an amount which shall be determined by the Compensation Committee at the time of grant; by (b) the fair market value of a share of common stock on the exercise date. Our Compensation Committee has the discretion to determine the number of shares as to which a stock appreciation right will relate as well as the duration and exercisability of a stock appreciation right. The exercise price may not be less than the fair market value of our common stock on the grant date.
Stock Awards. Stock awards consist of the transfer by the Company to an eligible participant of shares of common stock, without other payment, as additional compensation for services to the Company. The number of shares transferred pursuant to any stock award is determined by the Compensation Committee.
Restricted Stock. Restricted stock consists of the sale or transfer by the Company to an eligible participant of one or more shares of our common stock that are subject to restrictions on their sale or other transfer by the employee, which restrictions will lapse after a period of time as determined by the Compensation Committee. If restricted stock is sold to a participant, the sale price will be determined by the Compensation Committee, and the price may vary from time to time and among participants and may be less than the fair market value of the shares at the date of sale. Subject to these restrictions and the other requirements of the Plan, a participant receiving restricted stock shall have all of the rights of a shareholder as to those shares. The Compensation Committee may grant the right to receive cash, shares of stock, or other property equal in value to dividends paid with respect to the number of shares represented by restricted stock units.
Restricted Stock Units. Restricted stock units represent the right to receive shares of common stock at a future date, subject to vesting criteria.
Performance Awards. An eligible individual’s right to exercise or receive a grant or settlement of any incentive, and the timing thereof, may be subject to certain performance conditions specified by the Compensation Committee. The Compensation Committee may use business criteria and other measures of performance as it may deem appropriate in establishing performance conditions, and may exercise its discretion to change the amounts payable under any incentive subject to performance conditions.
Other Plan Terms
Limitation on Non-Employee Director Grants. During any one fiscal year, we may not grant to any non-employee director incentives that exceed in the aggregate $100,000 in value (such value computed as of the date of grant in accordance with applicable financial accounting rules) in any calendar year.
Transferability of Incentives. Incentives granted under the Plan may not be transferred, pledged or assigned by the holder thereof, except in the event of the holder’s death, by will or the laws of descent and distribution or pursuant to a qualified domestic relations order. However, stock options other than those intended to qualify as incentive stock options may be transferred by the holder thereof to certain family members or related entities.
Duration, Termination and Amendment of the Incentive Plan and Incentives. The Plan will remain in effect until all incentives granted under the Plan have been satisfied or terminated and all restrictions on shares issued under the Plan have lapsed. We may not grant incentives under the Plan after the tenth anniversary of the approval of the Plan by the Board of Directors. The Board of Directors may amend or discontinue the Plan at any time. However, no such amendment or discontinuance may adversely change or impair a previously granted incentive without the consent of the recipient thereof.
Certain Plan amendments require shareholder approval, including amendments that would increase the maximum number of shares of common stock which may be issued to all participants under the Plan, change or expand the types of incentives that may be granted under the Plan, change the class of persons eligible to receive incentives under the Plan, or materially increase the benefits accruing to participants under the Plan. Generally, the terms of an existing incentive may be amended by agreement between the Compensation Committee and the participant. However, in the case of a stock option or stock appreciation right, no such amendment shall (a) extend the term of the incentive; nor (b) reduce the exercise price per share below the fair market value of the common stock on the date the incentive was granted, unless, in either case, the amendment complies with the requirements of Internal Revenue Code Section 409A.
Effect of Sale, Merger, Exchange or Liquidation. In the event of an acquisition of the Company through the sale of substantially all of its assets or a change in control through a merger, exchange, reorganization or liquidation of the Company or a similar event, all as determined by the Compensation Committee in its sole discretion, the Compensation Committee shall be authorized to take any and all action it deems equitable under the circumstances, including but not limited to accelerating the vesting of all incentives, terminating the Plan and issuing to the holders of outstanding vested options and stock appreciation rights the stock, securities or assets, including cash, they would have received if the incentives had been exercised immediately before the transaction, or other specified actions.
Board Policies. The Plan provides that any incentives are subject to any insider trading, clawback and recovery policies adopted from time to time by the Board of Directors and subject to forfeiture and disgorgement to the extent required by law or applicable stock exchange listing standards. The Board of Directors may also impose such other clawback, recovery or recoupment provisions as the Board of Directors determines necessary or appropriate, including a right to repurchase shares previously issued under the Plan and any incentive.
Plan Benefits
The amount and timing of all awards under the Plan are determined in the sole discretion of our Compensation Committee (or if no committee is designated, the entire Board of Directors, and subject, however, to limited discretionary authority on the part of our Chief Executive Officer as described above) and therefore cannot be determined in advance.
Shareholder Approval of Plan
Consistent with the Nasdaq Listing Rules, the Plan provides that until the Plan is approved by the Company’s shareholders, (i) no shares of Common Stock may be issued under the Plan, and (ii) no options issued under the Plan may be exercised. If the Company’s shareholders do not approve the Plan on or prior to November 8, 2024, or if this Plan is submitted to a vote of shareholders and not approved, then the Plan and all Incentives granted thereunder will be null and void.
Earnings Release
On November 9, 2023, the Company issued a press release announcing its financial condition and results of operations for the three and nine months ended September 30, 2023. A copy of the press release is furnished as Exhibit 99.1 and is incorporated by reference into this Item 5 in lieu of separately furnishing such press release under Item 2.02 of Form 8-K. This disclosure, including Exhibit 99.1 hereto, shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference into any of the Company’s filings under the Securities Act of 1933, as amended, or the Exchange Act, except as expressly set forth by specific reference in such filing.
Item 6. Exhibits
| Exhibit No. |
Description |
|
| 10.1 | 2023 Stock Incentive Plan | |
| 31.1 |
Chief Executive Officer Certification pursuant to Exchange Act Rule 13a-14(a). |
|
| 31.2 |
Chief Financial Officer Certification pursuant to Exchange Act Rule 13a-14(a). |
|
| 32.1 |
Chief Executive Officer Certification pursuant to 18 U.S.C. Section 1350. |
|
| 32.2 |
Chief Financial Officer Certification pursuant to 18 U.S.C. Section 1350. |
|
| 99.1 | Press Release dated November 9, 2023 | |
| 101.INS |
Inline XBRL Instance Document |
|
| 101.SCH |
Inline XBRL Taxonomy Extension Schema. |
|
| 101.CAL |
Inline XBRL Taxonomy Extension Calculation Linkbase. |
|
| 101.DEF |
Inline XBRL Taxonomy Extension Definition Linkbase. |
|
| 101.LAB |
Inline XBRL Taxonomy Extension Label Linkbase. |
|
| 101.PRE |
Inline XBRL Taxonomy Extension Presentation Linkbase. |
|
| 104 | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101). |
* Filed herewith
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
Creative Realities, Inc. |
|
|
|
|
|
| Date: November 9, 2023 |
By |
/s/ Richard Mills |
|
|
|
Richard Mills |
| Chief Executive Officer | ||
| By | /s/ Will Logan | |
| Will Logan Chief Financial Officer |
||
Exhibit 10.1
CREATIVE REALITIES, INC.
2023 STOCK INCENTIVE PLAN
TABLE OF CONTENTS
| 1. |
Purpose |
1 |
|
| 2. |
Administration |
1 |
|
|
2.1 |
Administration by Committee |
1 |
|
|
2.2 |
Delegation of Authority |
1 |
|
| 3. |
Eligible Participants |
1 |
|
| 4. |
Types of Incentives |
2 |
|
| 5. |
Shares Subject to the Plan |
2 |
|
|
5.1 |
Number of Shares |
2 |
|
|
5.2 |
Cancellation |
2 |
|
|
5.3 |
Type of Common Stock |
2 |
|
|
5.4 |
Limitation on Awards Granted to Non-Employee Directors. |
2 |
|
| 6. |
Stock Options |
3 |
|
|
6.1 |
Price |
3 |
|
|
6.2 |
Number |
3 |
|
|
6.3 |
Duration and Time for Exercise |
3 |
|
|
6.4 |
Manner of Exercise |
3 |
|
|
6.5 |
Incentive Stock Options |
3 |
|
| 7. |
Stock Appreciation Rights |
4 |
|
|
7.1 |
Price |
4 |
|
|
7.2 |
Number |
5 |
|
|
7.3 |
Duration |
5 |
|
|
7.4 |
Exercise |
5 |
|
|
7.5 |
Issuance of Shares Upon Exercise |
5 |
|
| 8. |
Stock Awards, Restricted Stock and Restricted Stock Units |
5 |
|
|
8.1 |
Number of Shares |
5 |
|
|
8.2 |
Sale Price |
6 |
|
|
8.3 |
Restrictions |
6 |
|
|
8.4 |
Enforcement of Restrictions |
6 |
|
|
8.5 |
End of Restrictions |
6 |
|
|
8.6 |
Rights of Holders of Restricted Stock and Restricted Stock Units |
6 |
|
|
8.7 |
Settlement of Restricted Stock Units |
7 |
|
|
8.8 |
Dividend Equivalents |
7 |
|
| 9. |
Performance Awards |
7 |
|
| 10. |
General |
7 |
|
|
10.1 |
Effective Date |
7 |
|
|
10.2 |
Duration |
7 |
|
|
10.3 |
Non-Transferability of Incentives |
7 |
|
|
10.4 |
Effect of Termination or Death |
8 |
|
|
10.5 |
Restrictions under Securities Laws |
8 |
|
|
10.6 |
Adjustment |
8 |
|
|
10.7 |
Incentive Plans and Agreements |
8 |
|
|
10.8 |
Withholding |
9 |
|
|
10.9 |
No Continued Employment, Engagement or Right to Corporate Assets |
9 |
|
|
10.10 |
Payments Under Incentives |
9 |
|
|
10.11 |
Amendment of the Plan |
9 |
|
|
10.12 |
Amendment of Agreements for Incentives |
10 |
|
|
10.13 |
Sale, Change in Control, Merger, Exchange or Liquidation |
10 |
|
|
10.14 |
Definition of Fair Market Value |
11 |
|
|
10.15 |
Definition of Grant Date |
12 |
|
|
10.16 |
Compliance with Code Section 409A |
12 |
|
|
10.17 |
Shareholder Approval |
13 |
|
|
10.18 |
Clawback/Recovery |
13 |
|
CREATIVE REALITIES, INC.
2023 STOCK INCENTIVE PLAN
1. Purpose. The purpose of the 2023 Stock Incentive Plan (the “Plan”) of Creative Realities, Inc., a Minnesota corporation (the “Company”), is to increase shareholder value and to advance the interests of the Company by furnishing a variety of economic incentives (“Incentives”) designed to attract, retain and motivate employees, certain key consultants and directors of the Company. Incentives may consist of opportunities to purchase or receive shares of common stock, $0.01 par value per share, of the Company (“Common Stock”) or other incentive awards on terms determined under this Plan.
2. Administration.
2.1 Administration by Committee. The Plan shall be administered by the Board of Directors of the Company (the “Board of Directors”) or by a stock option or compensation committee of the Board of Directors (the “Committee,” which term is used throughout this Plan to refer to either the Board of Directors or a Committee – whichever is administering the Plan from time to time hereunder). If administered by a committee, the Committee shall consist of not less than two directors of the Company and shall be appointed from time to time by the Board of Directors. During any time period during which the Company has a class of equity securities registered under Section 12 of the Securities Exchange Act of 1934 (including the regulations thereunder, the “1934 Act”), each member of the Committee shall be (a) a “non-employee director” within the meaning of Rule 16b-3 of the 1934 Act (a “Non-Employee Director”), and (b) shall be an independent director under listing rules of The Nasdaq Stock Market or, if the Company is no longer listed on The Nasdaq Stock Market, then any national securities exchange on which the Company’s common stock may be listed. The Committee shall have complete authority to award Incentives under the Plan, to interpret the Plan, and to make any other determination which it believes necessary and advisable for the proper administration of the Plan. The Committee’s decisions and matters relating to the Plan shall be final and conclusive on the Company and its participants. If at any time there is No stock option or compensation committee, the term “Committee,” as used in the Plan, shall refer to the Board of Directors.
2.2 Delegation of Authority. Notwithstanding the foregoing or anything else to the contrary contained in the Plan, the Company’s Chief Executive Officer or Chief Financial Officer may, on a discretionary basis and without the Committee’s review or approval, grant Stock Options to purchase shares to employees of the Company who are not officers of the Company to the extent the Committee allocates shares for such purpose (as part of an annual budget or otherwise). Subject to the foregoing limitations, the Chief Executive Officer or Chief Financial Officer shall determine from time to time (i) the employees to whom grants will be made, (ii) the number of shares to be granted and (iii) the terms and provisions of each Stock Option (which need not be identical).
3. Eligible Participants. Officers of the Company, employees of the Company or its subsidiaries, members of the Board of Directors, and consultants or other independent contractors who provide services to the Company or its subsidiaries shall be eligible to receive Incentives under the Plan when designated by the Committee. Participants may be designated individually or by groups or categories (for example, by pay grade) as the Committee deems appropriate. Participation by officers of the Company or its subsidiaries and any performance objectives relating to such officers must be approved by the Committee. Participation by others and any performance objectives relating to others may be approved by groups or categories (for example, by pay grade) and authority to designate participants who are not officers and to set or modify such targets may be delegated.
4. Types of Incentives. Incentives under the Plan may be granted in any one or a combination of the following forms: (a) incentive stock options and non-statutory stock options; (b) stock appreciation rights (“SARs”); (c) stock awards; (d) restricted stock; (e) restricted stock units; and (f) performance awards. Subject to the specific limitations provided in this Plan, payment of Incentives may be in the form of cash, Common Stock or combinations thereof as the Committee shall determine, and with such other restrictions as it may impose.
5. Shares Subject to the Plan.
5.1 Number of Shares. Subject to adjustment as provided in Section 10.6, the number of shares of Common Stock issuable under the Plan shall not exceed 1,500,000 shares of Common Stock. Shares of Common Stock issued under the Plan or subject to outstanding Incentives will be applied to reduce the maximum number of shares of Common Stock remaining available for issuance under the Plan. Any shares of Common Stock subject to SARs granted under this Plan shall be counted in full against the above-indicated share limit, regardless of the number of shares of Common Stock actually issued upon the exercise of such SARs.
5.2 Cancellation. If an Incentive granted under the Plan expires or is terminated or canceled unexercised as to any shares of Common Stock or forfeited or reacquired by the Company pursuant to rights reserved upon issuance thereof, such forfeited and reacquired shares may again be issued under the Plan pursuant to another Incentive. If any Shares subject to an Incentive granted under the Plan are withheld or applied as payment in connection with the exercise of an Incentive (including the withholding of Shares on the exercise of a stock option or the exercise of an SAR that is settled in Shares) or the withholding or payment of taxes related thereto, such Shares shall not again be available for grant under the Plan.
5.3 Type of Common Stock. Common Stock issued under the Plan in connection with Incentives will be authorized and unissued shares.
5.4 Limitation on Awards Granted to Non-Employee Directors. No member of the Board of Directors who is not also an employee of the Company may be granted any Incentive or Incentives that exceed in the aggregate $100,000 in value (such value computed as of the date of grant in accordance with applicable financial accounting rules) in any calendar year (provided that service solely as a director, or payment of a fee for such services, will not cause a director to be considered an “employee” for purposes of this Section 5.4). The foregoing limit shall not apply to any Incentive made pursuant to any election by the directors, if permitted by the Committee, to receive an Incentive in lieu of all or a portion of annual and committee cash retainers and meeting fees.
6. Stock Options. A stock option is a right to purchase shares of Common Stock from the Company. Each stock option granted by the Committee under this Plan shall be subject to the following terms and conditions:
6.1 Price. The option price per share shall be determined by the Committee, subject to adjustment under Section 10.6. Notwithstanding the foregoing sentence, the option price per share shall not be less than the Fair Market Value (as defined in Section 10.14) of the Common Stock on the Grant Date (as defined in Section 10.15).
6.2 Number. The number of shares of Common Stock subject to a stock option shall be determined by the Committee, subject to adjustment as provided in Section 10.6. The number of shares of Common Stock subject to a stock option shall be reduced in the same proportion that the holder thereof exercises an SAR if any SAR is granted in conjunction with or related to the stock option.
6.3 Duration and Time for Exercise. Subject to earlier termination as provided in Section 10.4, the term of each stock option shall be determined by the Committee but shall not exceed ten years and one day from the Grant Date, as that term is defined in Section 10.15. Each stock option shall become exercisable at such time or times during its term as shall be determined by the Committee at the time of grant. The Committee may accelerate the exercisability of any stock option. Subject to the first sentence of this paragraph, the Committee may extend the term of any stock option to the extent provided in Section 10.4.
6.4 Manner of Exercise. A stock option may be exercised, in whole or in part, by giving written notice to the Company, specifying the number of shares of Common Stock to be purchased and accompanied by the full purchase price for such shares. The option price shall be payable: (a) in United States dollars upon exercise of the option and may be paid by cash, uncertified or certified check or bank draft; (b) unless otherwise provided in the option agreement, by delivery of shares of Common Stock in payment of all or any part of the option price, which shares shall be valued for this purpose at the Fair Market Value on the date such option is exercised; or (c) unless otherwise provided in the option agreement, by instructing the Company to withhold from the shares of Common Stock issuable upon exercise of the stock option shares of Common Stock in payment of all or any part of the exercise price and/or any related withholding tax obligations consistent with Section 10.8, which shares shall be valued for this purpose at the Fair Market Value or in such other manner as may be authorized from time to time by the Committee. Before the issuance of shares of Common Stock upon the exercise of a stock option, a participant shall have no rights as a shareholder.
6.5 Incentive Stock Options. Notwithstanding anything in the Plan to the contrary, the following additional provisions shall apply to the grant of stock options which are intended to qualify as Incentive Stock Options (as such term is defined in Section 422 the U.S. Internal Revenue Code of 1986, as amended from time to time (the “Code”)):
(a) The aggregate Fair Market Value (determined as of the time the option is granted) of the shares of Common Stock with respect to which Incentive Stock Options are exercisable for the first time by any participant during any calendar year (under all of the Company’s plans) shall not exceed $100,000. The determination will be made by taking Incentive Stock Options into account in the order in which they were granted. If such excess only applies to a portion of an Incentive Stock Option, the Committee, in its discretion, will designate which shares will be treated as shares to be acquired upon exercise of an Incentive Stock Option.
(b) Any option agreement for an Incentive Stock Option under the Plan shall contain such other provisions as the Committee shall deem advisable, but shall in all events be consistent with and contain all provisions required in order to qualify the options as Incentive Stock Options.
(c) All Incentive Stock Options must be granted within ten years from the earlier of the date on which this Plan was adopted by Board of Directors or the date this Plan was approved by the shareholders.
(d) Unless sooner exercised, all Incentive Stock Options shall expire no later than ten years after the Grant Date.
(e) The option price for Incentive Stock Options shall be not less than the Fair Market Value of the Common Stock subject to the option on the Grant Date.
(f) If Incentive Stock Options are granted to any participant who, at the time such option is granted, would own (within the meaning of Code Section 422) stock possessing more than 10% of the total combined voting power of all classes of stock of the employer corporation or of its parent or subsidiary corporation, (i) the option price for such Incentive Stock Options shall be not less than 110% of the Fair Market Value of the Common Stock subject to the option on the Grant Date and (ii) such Incentive Stock Options shall expire no later than five years after the Grant Date.
7. Stock Appreciation Rights. An SAR is a right to receive, without payment to the Company, a number of shares of Common Stock, the amount of which is determined pursuant to the formula set forth in Section 7.5. An SAR may be granted (a) with respect to any stock option granted under this Plan, either concurrently with the grant of such stock option or at such later time as determined by the Committee (as to all or any portion of the shares of Common Stock subject to the stock option), or (b) alone, without reference to any related stock option. Each SAR granted by the Committee under this Plan shall be subject to the following terms and conditions:
7.1 Price. The exercise price per share of any SAR granted without reference to a stock option shall be determined by the Committee, subject to adjustment under Section 10.6. Notwithstanding the foregoing sentence, the exercise price per share shall not be less than the Fair Market Value of the Common Stock on the Grant Date.
7.2 Number. Each SAR granted to any participant shall relate to such number of shares of Common Stock as shall be determined by the Committee, subject to adjustment as provided in Section 10.6. In the case of an SAR granted with respect to a stock option, the number of shares of Common Stock to which the SAR relates shall be reduced in the same proportion that the holder of the option exercises the related stock option.
7.3 Duration. Subject to earlier termination as provided in Section 10.4, the term of each SAR shall be determined by the Committee but shall not exceed ten years and one day from the Grant Date. Unless otherwise provided by the Committee, each SAR shall become exercisable at such time or times, to such extent and upon such conditions as the stock option, if any, to which it relates is exercisable. The Committee may in its discretion accelerate the exercisability of any SAR. Subject to the first sentence of this paragraph, the Committee may extend the term of any SAR to the extent provided in Section 10.4.
7.4 Exercise. An SAR may be exercised, in whole or in part, by giving written notice to the Company, specifying the number of SARs which the holder wishes to exercise. Upon receipt of such written notice, the Company shall, within 90 days thereafter, deliver to the exercising holder certificates for the shares of Common Stock or cash or both, as determined by the Committee, to which the holder is entitled pursuant to Section 7.5.
7.5 Issuance of Shares Upon Exercise. The number of shares of Common Stock which shall be issuable upon the exercise of an SAR shall be determined by dividing: (a) the number of shares of Common Stock as to which the SAR is exercised multiplied by the amount of the appreciation in such shares (for this purpose, the “appreciation” shall be the amount by which the Fair Market Value of the shares of Common Stock subject to the SAR on the exercise date exceeds (1) in the case of an SAR related to a stock option, the purchase price of the shares of Common Stock under the stock option or (2) in the case of an SAR granted alone, without reference to a related stock option, an amount which shall be determined by the Committee at the time of grant, subject to adjustment under Section 10.6); by (b) the Fair Market Value of a share of Common Stock on the exercise date. No fractional shares of Common Stock shall be issued upon the exercise of an SAR; instead, the holder of the SAR shall be entitled to receive a cash adjustment equal to the same fraction of the Fair Market Value of a share of Common Stock on the exercise date or to purchase the portion necessary to make a whole share at its Fair Market Value on the date of exercise.
8. Stock Awards, Restricted Stock and Restricted Stock Units. A stock award consists of the transfer by the Company to a participant of shares of Common Stock, with or without other payment therefor, as additional compensation for services to the Company. A share of restricted stock consists of shares of Common Stock which are sold or transferred by the Company to a participant at a price, if any, determined by the Committee and subject to restrictions on their sale or other transfer by the participant. Restricted stock units represent the right to receive shares of Common Stock at a future date. Stock awards, restricted stock and restricted stock units shall be subject to the following terms and conditions:
8.1 Number of Shares. The number of shares to be transferred or sold by the Company to a participant pursuant to a stock award or as restricted stock, or the number of shares that may be issued pursuant to a restricted stock unit, shall be determined by the Committee.
8.2 Sale Price. The Committee shall determine the price, if any, at which shares of restricted stock shall be sold to a participant, which may vary from time to time and among participants and which may be below the Fair Market Value of such shares of Common Stock at the date of sale.
8.3 Restrictions. All shares of restricted stock transferred or sold by the Company hereunder, and all restricted stock units granted hereunder, shall be subject to such restrictions as the Committee may determine, including, without limitation any or all of the following: (a) a prohibition against the sale, transfer, pledge or other encumbrance of the shares of restricted stock, such prohibition to lapse at such time or times as the Committee shall determine (whether in annual or more frequent installments, at the time of the death, disability or retirement of the holder of such shares, or otherwise); (b) a requirement that the holder of shares of restricted stock or restricted stock units forfeit, or (in the case of shares sold to a participant) re-sell back to the Company at his or her cost, all or a part of such shares in the event of termination of his or her employment, service on the Board of Directors or consulting engagement during any period in which such shares are subject to restrictions; and/or (c) such other conditions or restrictions as the Committee may deem advisable.
8.4 Enforcement of Restrictions. In order to enforce the restrictions imposed by the Committee pursuant to Section 8.3, the participant receiving restricted stock or restricted stock units shall enter into an agreement with the Company setting forth the conditions of the grant. Shares of restricted stock shall be registered in the name of the participant and deposited, together with a stock power endorsed in blank, with the Company. Each such certificate shall bear a legend that refers to the Plan and the restrictions imposed under the applicable agreement. At the Committee’s election, shares of restricted stock may be held in book entry form subject to the Company’s instructions until any restrictions relating to the restricted stock grant lapse.
8.5 End of Restrictions. Subject to Section 10.5, at the end of any time period during which the shares of restricted stock are subject to forfeiture and restrictions on transfer, such shares will be delivered free of all restrictions to the participant or to the participant’s legal representative, beneficiary or heir. Subject to Section 10.5, upon the lapse or waiver of restrictions applicable to restricted stock units, or at a later time specified in the agreement governing the grant of restricted stock units, any shares derived from the restricted stock units shall be issued and delivered to the holder of the restricted stock units.
8.6 Rights of Holders of Restricted Stock and Restricted Stock Units. Subject to the terms and conditions of the Plan, each participant receiving restricted stock shall have all the rights of a shareholder with respect to shares of stock during any period in which such shares are subject to forfeiture and restrictions on transfer, including without limitation, the right to vote such shares. Any holder of restricted stock units shall not be, and shall not have rights and privileges of, a shareholder with respect to any shares that may be derived from the restricted stock units unless and until such shares have been issued.
8.7 Settlement of Restricted Stock Units. Restricted stock units may be satisfied by delivery of shares of stock, cash equal to the Fair Market Value of the specified number of shares covered by the restricted stock units, or a combination thereof, as determined by the Committee at the date of grant or thereafter.
8.8 Dividend Equivalents. In connection with any award of restricted stock units, the Committee may grant the right to receive cash, shares of stock or other property equal in value to dividends paid with respect to the number of shares represented by the restricted stock units (“Dividend Equivalents”). Unless otherwise determined by the Committee at the date of grant, any Dividend Equivalents that are granted with respect to any award of restricted stock units shall be paid with respect to such restricted stock units at the dividend payment date in cash or in shares of unrestricted stock having a Fair Market Value equal to the amount of such dividend.
9. Performance Awards. The right of a participant to exercise or receive a grant or settlement of any Incentive, and the timing thereof, may be subject to such performance conditions as may be specified by the Committee (such an Incentive is referred to as a “Performance Award”). The Committee may use such business criteria and other measures of performance as it may deem appropriate in establishing any performance conditions, and may exercise its discretion to change the amounts payable under any Incentive subject to performance conditions.
10. General.
10.1 Effective Date. The Plan is effective as of November 8, 2023 (the “Effective Date”).
10.2 Duration. The Plan shall remain in effect until all Incentives granted under the Plan have either been satisfied by the issuance of shares of Common Stock or the payment of cash or been terminated under the terms of the Plan and all restrictions imposed on shares of Common Stock in connection with their issuance under the Plan have lapsed. No Incentives may be granted under the Plan after the tenth anniversary of the Effective Date of the Plan.
10.3 Non-Transferability of Incentives. No stock option, SAR, restricted stock or stock award may be transferred, pledged or assigned by the holder thereof (except, in the event of the holder’s death, by will or the laws of descent and distribution to the limited extent provided in the Plan or the Incentive, or pursuant to a qualified domestic relations order as defined by the Code or Title I of the Employee Retirement Income Security Act, or the rules thereunder), and the Company shall not be required to recognize any attempted assignment of such rights by any participant. Notwithstanding the preceding sentence, stock options (other than stock options intended to qualify as Incentive Stock Options pursuant to Section 6.5) may be transferred by the holder thereof to the holder’s spouse, children, grandchildren or parents (collectively, the “Family Members”), to trusts for the benefit of Family Members, to partnerships or limited liability companies in which Family Members are the only partners or shareholders, or to entities exempt from federal income taxation pursuant to Code Section 501(c)(3). During a participant’s lifetime, a stock option may be exercised only by him or her, by his or her guardian or legal representative or by the transferees permitted by this Section 10.3.
10.4 Effect of Termination or Death. If a participant ceases to be an employee of or consultant to the Company for any reason, including death or disability, any Incentives may be exercised or shall expire at such times as may be set forth in the agreement, if any, applicable to the Incentive, or otherwise as determined by the Committee; provided, however, the term of an Incentive may not be extended beyond the term originally prescribed when the Incentive was granted, unless the Incentive satisfies (or is amended to satisfy) the requirements of Code Section 409A, including the rules and regulations promulgated thereunder (together, “Code Section 409A”); and provided further that the term of an Incentive may not be extended beyond the maximum term permitted under this Plan.
10.5 Restrictions under Securities Laws. Notwithstanding anything in this Plan to the contrary: (a) the Company may, if it shall determine it necessary or desirable for any reason, at the time of award of any Incentive or the issuance of any shares of Common Stock pursuant to any Incentive, require the recipient of the Incentive, as a condition to the receipt thereof or to the receipt of shares of Common Stock issued pursuant thereto, to deliver to the Company a written representation of present intention to acquire the Incentive or the shares of Common Stock issued pursuant thereto for his or her own account for investment and not for distribution; and (b) if at any time the Company further determines, in its sole discretion, that the listing, registration or qualification (or any updating of any such document) of any Incentive or the shares of Common Stock issuable pursuant thereto is necessary on any securities exchange or under any federal or state securities or blue sky law, or that the consent or approval of any governmental regulatory body is necessary or desirable as a condition of, or in connection with the award of any Incentive, the issuance of shares of Common Stock pursuant thereto, or the removal of any restrictions imposed on such shares, such Incentive shall not be awarded or such shares of Common Stock shall not be issued or such restrictions shall not be removed, as the case may be, in whole or in part, unless such listing, registration, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Company.
10.6 Adjustment. In the event of any recapitalization, stock dividend, stock split, combination of shares or other change in the Common Stock, the number of shares of Common Stock then subject to the Plan, including shares subject to outstanding Incentives, and the other numbers of shares of Common Stock provided in the Plan, shall be adjusted in proportion to the change in outstanding shares of Common Stock. In the event of any such adjustments, the purchase price of any option, the performance objectives of any Incentive, and the shares of Common Stock issuable pursuant to any Incentive shall be adjusted as and to the extent appropriate, in the discretion of the Committee, to provide participants with the same relative rights before and after such adjustment.
10.7 Incentive Plans and Agreements. Except in the case of stock awards, the terms of each Incentive shall be stated in a plan or agreement approved by the Committee. The Committee may also determine to enter into agreements with holders of options to reclassify or convert certain outstanding options, within the terms of the Plan, as Incentive Stock Options or as non-statutory stock options and in order to eliminate SARs with respect to all or part of such options and any other previously issued options. The Committee shall communicate the key terms of each award to the participant promptly after the Committee approves the grant of such award.
10.8 Withholding.
(a) The Company shall have the right to withhold from any payments made under the Plan or to collect as a condition of payment, any taxes required by law to be withheld. If so permitted by the Committee at the time of the award of any Incentive or at a later time, at any time when a participant is required to pay to the Company an amount required to be withheld under applicable income tax laws in connection with a distribution of Common Stock or upon exercise of an option or SAR or upon vesting of restricted stock, the participant may satisfy this obligation in whole or in part by electing (the “Election”) to have the Company withhold, from the distribution or from such shares of restricted stock, shares of Common Stock having a value up to the minimum amount of withholding taxes required to be collected on the transaction. The value of the shares to be withheld shall be based on the Fair Market Value of the Common Stock on the date that the amount of tax to be withheld shall be determined (“Tax Date”).
(b) Each Election must be made before the Tax Date. The Committee may disapprove of any Election, may suspend or terminate the right to make Elections, or may provide with respect to any Incentive that the right to make Elections shall not apply to such Incentive. An Election is irrevocable.
10.9 No Continued Employment, Engagement or Right to Corporate Assets. No participant under the Plan shall have any right, because of his or her participation, to continue in the employ of the Company or any of its subsidiaries for any period of time or to any right to continue his or her present or any other rate of compensation. Nothing contained in the Plan shall be construed as giving an employee, a consultant, such persons’ beneficiaries or any other person any equity or interests of any kind in the assets of the Company or creating a trust of any kind or a fiduciary relationship of any kind between the Company and any such person.
10.10 Payments Under Incentives. Payment of cash or distribution of any shares of Common Stock to which a participant is entitled under any Incentive shall be made as provided in the Incentive. Except as permitted under Section 10.16, payments and distributions may not be deferred under any Incentive unless the deferral complies with the requirements of Code Section 409A.
10.11 Amendment of the Plan. The Board of Directors may amend or discontinue the Plan at any time. However, no such amendment or discontinuance shall adversely change or impair, without the consent of the recipient, an Incentive previously granted. Further, no such amendment shall, without approval of the shareholders of the Company, (a) increase the maximum number of shares of Common Stock which may be issued to all participants under the Plan, (b) change or expand the types of Incentives that may be granted under the Plan, (c) change the class of persons eligible to receive Incentives under the Plan, or (d) materially increase the benefits accruing to participants under the Plan.
10.12 Amendment of Agreements for Incentives; No Repricing. Except as otherwise provided in this Section 10.12 or Section 10.16, the terms of an existing Incentive may be amended by agreement between the Committee and the participant. Notwithstanding the foregoing sentence, in the case of a stock option or SAR, no such amendment shall: (a) without shareholder approval, lower the exercise price of a previously granted stock option or SAR, cancel a stock option or SAR when the exercise price per share exceeds the Fair Market Value of the underlying shares in exchange for another Incentive or cash, or take any other action with respect to a stock option that may be treated as a repricing under the federal securities laws or generally accepted accounting principles; or (b) extend the term of the Incentive, except as provided in Section 10.4 and 10.16.
10.13 Sale, Change in Control, Merger, Exchange or Liquidation. Unless otherwise provided in the agreement for an Incentive, in the event of (i) an acquisition of the Company through the sale of all or substantially all of the Company’s assets or (ii) a change in control of at least a majority of the issued and outstanding voting securities of the Company through a merger, exchange, reorganization or liquidation of the Company or a similar event, all as determined by the Committee in its sole discretion (collectively, any of the transactions described in clauses (i) and (ii) are referred to as a “Sale Transaction”), the Committee shall be authorized, in its sole discretion, to take any and all action it deems equitable under the circumstances, including but not limited to any one or more of the following:
(a) providing that the Plan and all Incentives shall terminate and the holders of (i) all outstanding vested options shall receive, in lieu of any shares of Common Stock they would be entitled to receive under such options, such stock, securities or assets, including cash, as would have been paid to such participants if their options had been exercised and such participant had received Common Stock immediately before such Sale Transaction (with appropriate adjustment for the exercise price, if any), (ii) SARs that entitle the participant to receive Common Stock shall receive, in lieu of any shares of Common Stock each participant was entitled to receive as of the date of the Sale Transaction pursuant to the terms of such Incentive, if any, such stock, securities or assets, including cash, as would have been paid to such participant if such Common Stock had been issued to and held by the participant immediately before such Sale Transaction, and (iii) any Incentive under this Plan which does not entitle the participant to receive Common Stock shall be equitably treated as determined by the Committee;
(b) providing that participants holding outstanding vested Common Stock-based Incentives shall receive, with respect to each share of Common Stock issuable pursuant to such Incentives as of the effective date of any such Sale Transaction, at the determination of the Committee, cash, securities or other property, or any combination thereof, in an amount equal to the excess, if any, of the Fair Market Value of such Common Stock (determined as of any date within ten days before the effective date of such Sale Transaction) over the option price or other amount owed by a participant, if any, and that such Incentives shall be cancelled, including the cancellation without consideration of all options that have an exercise price below the per share value of the consideration received by the Company in the Sale Transaction;
(c) subject to any provisions contained in a particular written agreement evidencing an Incentive, providing that the Plan (or replacement plan) shall continue with respect to Incentives not cancelled or terminated as of the effective date of such Sale Transaction and provide to participants holding such Incentives the right to earn their respective Incentives on the same or a substantially equivalent basis (taking into account the Sale Transaction and the number of shares or other equity issued by such successor entity) with respect to the equity of the entity succeeding the Company by reason of such Sale Transaction; or
(d) subject to any provisions contained in a particular written agreement evidencing an Incentive, providing that such Incentive shall become vested and all restrictions shall lapse.
The Board of Directors may restrict the rights of participants or the applicability of this Section 10.13 to the extent necessary to comply with Section 16(b) of the 1934 Act, the Code or any other applicable law or regulation. The grant of an Incentive award pursuant to the Plan shall not limit in any way the right or power of the Company to make adjustments, reclassifications, reorganizations or changes of its capital or business structure or to merge, exchange or consolidate or to dissolve, liquidate, sell or transfer all or any part of its business or assets.
10.14 Definition of Fair Market Value. For purposes of this Plan, the “Fair Market Value” of a share of Common Stock at a specified date shall, unless otherwise expressly provided in this Plan, be the amount which the Committee determines in good faith to be 100% of the fair market value of such a share as of the date in question. Notwithstanding the foregoing:
(a) If such shares are listed on a U.S. securities exchange, then Fair Market Value shall be determined by reference to the last sale price of a share of Common Stock on such U.S. securities exchange on the applicable date. If such U.S. securities exchange is closed for trading on such date, or if the Common Stock does not trade on such date, then the last sale price used shall be the one on the date the Common Stock last traded on such U.S. securities exchange.
(b) If such shares are publicly traded but are not listed on a U.S. securities exchange, then Fair Market Value shall be determined by reference to the trading price of a share of Common Stock on such date (or, if the applicable market is closed on such date, the last date on which the Common Stock was publicly traded), by a method consistently applied by the Committee.
(c) If such shares are not publicly traded, then the Committee’s determination will be based upon a good faith valuation of the Company’s Common Stock as of such date, which shall be based upon such factors as the Committee deems appropriate. The valuation shall be accomplished in a manner that complies with Code Section 409A and shall be consistently applied to Incentives under the Plan.
10.15 Definition of Grant Date. For purposes of this Plan, the “Grant Date” of an Incentive shall be the date on which the Committee approved the award (or, if applicable, the date on which the Company’s Chief Executive Officer exercised discretionary authority granted by the Committee and approved the award) or, if later, the date on which (a) the participant is no longer able to negotiate the terms of the award and (b) it is expected that the key terms of the award will be communicated within a relatively short period of time.
10.16 Compliance with Code Section 409A.
(a) Except to the extent such acceleration or deferral is permitted by the requirements of Code Section 409A, neither the Committee nor a participant may accelerate or defer the time or schedule of any payment of, or the amount scheduled to be paid under, an Incentive that constitutes Deferred Compensation (as defined in paragraph(d) below); provided, however, that payment shall be permitted if it is in accordance with a “specified time” or “fixed schedule” or on account of “separation from service,” “disability,” death, “change in control” or “ unforeseeable emergency” (as those terms are defined under Code Section 409A) that is specified in the agreement evidencing the Incentive.
(b) Notwithstanding anything in this Plan, unless the agreement evidencing the Incentive specifically provides otherwise, if a participant is treated as a Specified Employee (as defined in paragraph (d) and as determined under Code Section 409A by the Committee in good faith) as of the date of his or her “separation from service” as defined for purposes of Code Section 409A, the Company may not make payment to the participant of any Incentive that constitutes Deferred Compensation, earlier than 6 months following the participant’s separation from service (or if earlier, upon the Specified Employee’s death), except as permitted under Code Section 409A. Any payments that otherwise would be payable to the Specified Employee during the foregoing 6-month period will be accumulated and payment delayed until the first date after the 6-month period. The Committee may specify in the Incentive agreement, that the amount of the Deferred Compensation delayed under this paragraph shall accumulate interest, earnings or Dividend Equivalents (as applicable) during the period of such delay.
(c) The Committee may, however, reform any provision in an Incentive that is intended to comply with (or be exempt from) Code Section 409A, to maintain to the maximum extent practicable the original intent of the applicable provision without violating the provisions of Code Section 409A.
(d) For purposes of this Section 10.16, “Deferred Compensation” means any Incentive under this Plan that provides for the “deferral of compensation” under a “nonqualified deferred compensation plan” (as those terms are defined under Code Section 409A) and that would be subject to the taxes specified in Code Section 409A(a)(1) if and to the extent that the Plan and the agreement evidencing the Incentive do not meet or are not operated in compliance with the requirements of paragraphs (a)(2), (a)(3) and (a)(4) of Code Section 409A. Deferred Compensation shall not include any amount that is otherwise exempt from the requirements of Code Section 409A. A “Specified Employee” means a Participant who is a “key employee” as described in Code Section 416 (i) (disregarding paragraph (5) thereof) at any time during the Company’s fiscal year ending on January 31, or such other “identification date” that applies consistently for all plans of the Company that provide “deferred compensation” that is subject to the requirements of Code Section 409A. Each participant will be identified as a Specified Employee in accordance with Code Section 409A, including with respect to the merger of the Company with any other company or any spin-off or similar transaction, and such identification shall apply for the 12-month period commencing on the first day of the fourth month following the identification date. Notwithstanding the foregoing, no participant shall be a Specified Employee unless the stock of the Company (or other member of a “controlled group of corporations” as determined under Code Section 1563) is publicly traded on an established securities market (or otherwise) as of the date of the participant’s “separation from service” as defined in Code Section 409A.
10.17 Shareholder Approval. Notwithstanding anything to the contrary set forth in the Plan, until the Plan is approved by the Company’s shareholders, (i) no shares of Common Stock may be issued under the Plan, and (ii) no options issued under the Plan may be exercised. If the Company’s shareholders do not approve the Plan on or prior to the 12-month anniversary of the Effective Date, or if the Plan is submitted to a vote of shareholders and not approved, then the Plan and all Incentives granted hereunder shall thereupon be null and void without any further action required by the Committee or the Company.
10.18 Clawback/Recovery.
(a) Each Incentive will be subject to any policy of the Company or any of its Subsidiaries that relates to trading on non-public information and permitted transactions with respect to shares of Common Stock, including, but not limited to, limitations on hedging and pledging. In addition, each Award will be subject to any policy of the Company or any of its Subsidiaries that provides for forfeiture, disgorgement, or clawback with respect to incentive compensation that includes Incentives under the Plan, and will be further subject to forfeiture and disgorgement to the extent required by law or applicable stock exchange listing standards, including, without limitation, Section 10D of the 1934 Act. The Board of Directors may also impose such other clawback, recovery or recoupment provisions in an Incentive agreement or employment agreement as the Board of Directors determines necessary or appropriate, including but not limited to a reacquisition right in respect of a participant’s previously acquired shares of Common Stock or other cash or property upon the occurrence of an event constituting “cause,” as such term may be defined in the relevant agreement.
(b) Each participant of the Plan, by accepting or being deemed to have accepted an Incentive under the Plan, agrees (or will be deemed to have agreed) to the terms of this Section 10.18(b) and any clawback, recoupment or similar policy of the Company or any of its subsidiaries and further agrees (or will be deemed to have further agreed) to cooperate fully with the Board of Directors, and to cause any and all permitted transferees of the participant to cooperate fully with the Board of Directors, to effectuate any forfeiture or disgorgement described in this Section 10.18(b). Neither the Board of Directors nor the Company (or its subsidiaries) nor any other person, other than the participant and his or her permitted transferees, if any, will be responsible for any adverse tax or other consequences to a participant or his or her permitted transferees, if any, that may arise in connection with this Section 10.18(b). No recovery of compensation under such a clawback policy will be an event giving rise to a right to voluntary terminate employment upon “resignation” for “good reason” or for a “constructive termination” or any similar term under any plan of or agreement with the Company.
EXHIBIT 31.1
CHIEF EXECUTIVE OFFICER CERTIFICATION
PURSUANT TO EXCHANGE ACT RULE 13a-14(a)
I, Richard Mills, certify that:
|
1. |
I have reviewed this quarterly report on Form 10-Q for the three and nine months ended September 30, 2023, of Creative Realities, Inc.; |
|
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
|
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
|
4. |
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|
a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
d) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
|
5. |
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
|
a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
|
b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Dated: November 9, 2023
| By: | /s/ Richard Mills | |
|
Richard Mills Chief Executive Officer |
EXHIBIT 31.2
CHIEF FINANCIAL OFFICER CERTIFICATION
PURSUANT TO EXCHANGE ACT RULE 13a-14(a)
I, Will Logan, certify that:
|
1. |
I have reviewed this quarterly report on Form 10-Q for the three and nine months ended September 30, 2023, of Creative Realities, Inc.; |
|
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
|
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
|
4. |
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|
a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
d) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
|
5. |
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
|
a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
|
b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Dated: November 9, 2023
| By: | /s/ Will Logan | |
|
Will Logan Chief Financial Officer |
EXHIBIT 32.1
CHIEF EXECUTIVE OFFICER CERTIFICATION
PURSUANT TO 18 U.S.C. SECTION 1350
In connection with the Quarterly Report of Creative Realities, Inc. (the “Company”) on Form 10-Q for the three and nine months ended September 30, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Richard Mills, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
|
1. |
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
|
2. |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
Dated: November 9, 2023
| By: | /s/ Richard Mills | |
|
Richard Mills Chief Executive Officer |
EXHIBIT 32.2
CHIEF FINANCIAL OFFICER CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
In connection with the Quarterly Report of Creative Realities, Inc. (the “Company”) on Form 10-Q for the three and nine months ended September 30, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Will Logan, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
|
1. |
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
|
2. |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
Dated: November 9, 2023
| By: | /s/ Will Logan | |
|
Will Logan Chief Financial Officer |
Exhibit 99.1
FOR IMMEDIATE RELEASE
Creative Realities Reports 3rd Quarter 2023 Results
|
● |
Announces Record 3Q 2023 Revenue of $11.6 million |
|
● |
Announces Record 3Q Gross Profit of $5.3 million (45.8%) |
|
● |
Announces Record Annual Recurring Revenue run-rate of ~$15.6 million |
|
● |
Announces Projected 4Q Revenue of $15.8- $17.8 million |
|
● |
Reiterates Projected FY2023 Revenue of $46.8 - $48.4 million |
|
● |
Issues Projected FY2024 Revenue of $60 million to $80 million |
|
● |
Issues Projected FY2024 Adjusted EBITDA of $7.2 million to $12.0 million |
|
● |
Issues Projected FY 2024 exit ARR run rate of $18.0 million |
LOUISVILLE, KY – November 9, 2023 – Creative Realities, Inc. (“Creative Realities,” “CRI,” or the “Company”) (NASDAQ: CREX, CREXW), a leading provider of digital signage and media solutions, announced its financial results for the three and nine-month periods ended September 30, 2023.
Rick Mills, Chief Executive Officer, commented “I am pleased to report overall record quarterly revenue and gross profit of $11.6 million and $5.3 million, respectively. These numbers exceed current consensus analyst estimates. The third quarter gross profit margin of 45.8% is a 500 basis-point improvement over the third quarter of last year and a continuation of the improved year-over-year trend in margins demonstrated in the first two quarters of the year. This brings the Company’s year-to-date gross profit to a record $14.7 million at a record gross profit margin in any year of 47.8%. This is approximately a 790 basis-point improvement over 2022.”
Mr. Mills continued, “The march to value creation continues as we execute our strategy acquire new enterprise customers utilizing our fully integrated offering- from hardware to SaaS to an extensive array of services. Our SaaS-related ARR is now at a record $15.6 million run-rate and on target to meet or exceed $16 million by year-end.” Mr. Mills added, “Ongoing growth in ARR, already seeded as we work through our backlog, is additionally bolstered by the momentum of a near 70% RFP win rate this year.”
“The company is poised for another transformational year in 2024. Through the first nine months of 2023, we have paid down debt principal by approximately $3.9. million. This, in addition to our equity offering in August of this year, reduced our net debt to $8.4 million. We had $8.4 million in cash on hand as of the end of the third quarter. Our leverage ratio reduced from 4.9 times as of December 31, 2022 to 2.6 times as of September 30, 2023 leveraging the trailing twelve months Adjusted EBITDA. We project record fourth quarter revenue of $15.8 million to $17.8 million to yield between a record $46.4 million to $48.4 million for fiscal year 2023. The anticipated continuation of record revenue, improvements in margins and debt reduction into 2024 is expected to translate to free cash flow generation for the first time in the Company’s history in 2024. We believe we have the business prospects and, now, balance sheet, to drive value.”
2024 Guidance
The Company is issuing 2024 Revenue and Adjusted EBITDA projections in ranges of $60.0 million to $80 million, and $7.2 million to $12 million, respectively, with a 2024 targeted exit ARR run-rate of $18.0 million. The Company projects a 2024 year-end exit leverage ratio of between 1.2 and 1.5 times, barring any additional financings or strategic opportunities.
Mr. Mills encouraged investors to attend the Company’s earnings release call, “In addition to providing additional context to our third quarter earnings, we will convey several important announcements and updates relating to new customer acquisitions and the scaling of our CMS platforms.”
Our backlog remains steady at greater than $110 million as of September 30, 2023. Revenue backlog is primarily related to projected network deployments and project work, which upon execution will result in additional ARR. The Company’s backlog calculation is comprised of the full rollout of projects that have been communicated to us by our current customers under contract, and includes all revenues to be received by the Company by deploying all of our products and services necessary to service such stated projects, including projected revenues that are not currently subject to binding purchase orders or firm commitments.
3Q 2023 Financial Overview
All references to “current year” and “prior year” represent references to the three months ended September 30, 2023 and 2022, respectively.
Key Highlights:
|
● |
Revenue in excess of analyst consensus at $11.6 million. |
|
● |
Expansion of gross margin percentage to 45.8% in the current year from 40.4% in the prior year. |
|
● |
Expansion of Annualized Recurring Revenue to forward run-rate of ~$15.6 million. |
Revenue, gross profit, and gross margin:
|
● |
Sales were $11,568, representing an increase of $388, or 3%, as compared to the same period in 2022. Hardware revenues were $4,847 for the current year, a decrease of $168, or 3%, as compared to the prior year, of which approximately $3.0 million were earned from customers new to the Company in 2023. |
|
● |
Services and other revenues were $6,721 for the three month period ended September 30, 2023, an increase of $556, or 9%, compared to prior year driven by increases of (1) $543 in media sales attributable to the addition of sales resources and restructuring of third party selling contracts to expand its access to such agents, and (2) $420 in managed services revenue as a result of increased SaaS licenses that drive annual recurring revenue. These increases in services revenue in the current year were partially offset by a $505 decrease in installation services revenue as deployment of hardware sold during the current year associated with multiple advertising networks did not begin installation activities until the fourth quarter of 2023. |
|
● |
Gross profit increased $789, or 17% during the current year as compared to the prior year driven by enhanced margins on hardware revenues and an increase in services revenue. |
|
● |
Gross profit margin increased to 46% during the current year, from 40% in the prior year driven by (1) favorable revenue mix during the current year as managed services, which includes higher margin SaaS and other services revenues, increased to 37% of total revenue as compared to 35% of total revenues in the prior year, and (2) a 6% margin expansion associated with hardware revenues generated in the current year primarily generated from sales of custom manufactured kiosks purchased for deployment of an advertising network. |
Operating expenses:
|
● |
Sales and marketing expenses generally include the salaries, taxes, and benefits of our sales and marketing personnel, as well as trade show activities, travel, and other related sales and marketing costs. Sales and marketing expenses in the current year increased by $583, or 81%, compared to the prior year driven primarily by seasonality in the Company’s media sales business unit and the Company’s enhanced investments into sales and marketing activities. Following the Company’s acquisition of Reflect Systems, Inc. via merger in 2022 (the “Merger”), the Company adopted certain tools, technology, and processes – particularly with respect to lead generation and brand marketing – that were historically undercapitalized by the Company and have since accelerated new customer acquisition. Through completion of the Merger, the Company also acquired a media sales business unit that serves to monetize customer networks via the direct sale of advertising to be displayed on digital advertising networks owned by those customers. This business utilizes internal and third-party sales agents - the salaries and commissions of which are included within Sales and Marketing Expense within the Condensed Consolidated Statement of Operations. |
|
● |
Research and development expenses generally include personnel and development tools costs associated with the continued development of the Company’s content management systems and other related application development. The Company capitalizes certain of these expenses and amortizes those costs through the Condensed Consolidated Statement of Operations on a straight-line basis over the economic useful life of the software feature or functionality. Research and development expenses increased by $155, or 65%, for the current year as compared to the prior year driven primarily by incremental headcount added via completion of the Merger on February 17, 2022 and a higher rate of bug and maintenance work as compared to capitalized activities during the current year. |
|
● |
General and administrative expenses decreased $215, or 8% during the current year as compared to the prior year driven by a decrease of $492 in stock compensation expense as outstanding performance awards were fully expensed as of December 31, 2022. This decrease was partially offset by increased personnel costs in the current year as a result of higher headcount following the Merger and scaled up operations in response to an increase in customer acquisition and associated planned deployments. |
Operating loss, net loss, and EBITDA:
|
● |
Operating income was $160 thousand in the current year as compared to an operating loss of $284 thousand in the prior year, inclusive of approximately $0.8 million in non-cash amortization of fixed and intangible assets in both the current and prior year. |
|
● |
Net loss was $1.9 million for the current year as compared to net loss of $0.6 million for the prior year. Excluding the non-cash change in the fair value of contingent consideration issuable in the Merger, the net loss was $0.6 and $1.0 million in the current and prior year periods, respectively. |
|
● |
Adjusted EBITDA and associated Adjusted EBITDA margin were approximately $1.0 million and 8.8% in the current year as compared to $1.2 million and 11.2% in the prior year. See the table at the end of this press release for a description of these non-GAAP financial measures and reconciliation to our net income/(loss) for the current and prior years. |
Other notes:
|
● |
Cash: The Company’s cash on hand as of September 30, 2023 increased to $8.4 million from $1.6 million as of December 31, 2022 as a result of the Company’s receipt of $5.4 million in net proceeds from the Company’s public offering completed in August 2023, as well as incremental collections on accounts receivable, annual billings associated with our SaaS-based contracts, and increases in customer deposits on future deployments, partially offset by investments in software development projects and repayment of debt. |
|
● |
Debt: Through September 30, 2023, the Company repaid in the current calendar year in excess of $3.9 million in principal on debt in the current calendar year, reducing the Company’s leverage ratio from approximately 4.9 times to approximately 2.6 times. |
Conference Call Details
The Company will host a conference call to review the results of the Company’s third quarter 2023, and provide additional commentary about the Company’s recent performance, on Friday, November 10, 2023 at 9:00 am Eastern Time.
Prior to the call, participants should register at https://bit.ly/CRIearnings2023Q3. Once registered, participants can use the dial-in information provided in the registration email to listen to the Company’s prepared remarks and participate in the live question and answer session. An archived edition of the conference call will also be posted on our website at www.cri.com later that same day and will remain available to interested parties via the same link for one year.
About Creative Realities, Inc.
Creative Realities helps clients use place-based digital media to achieve business objectives such as increased revenue, enhanced customer experiences, and improved productivity. The Company designs, develops and deploys digital signage experiences for enterprise-level networks, and is actively providing recurring SaaS and support services across diverse vertical markets, including but not limited to retail, automotive, digital-out-of-home (DOOH) advertising networks, convenience stores, foodservice/QSR, gaming, theater, and stadium venues.
With its recent acquisition of Reflect Systems, Inc. (“Reflect”), a leading provider of digital signage software platforms, the Company is poised to extend its product and service offering and accelerate growth in SaaS revenue. While Reflect provided a broad range of digital signage solutions, Reflect’s flagship products are the market-leading ReflectView digital signage platform and Reflect AdLogic ad management platform. ReflectView is the industry’s most comprehensive, scalable, enterprise-grade digital signage platform, powering enterprise customer networks. Meanwhile, Reflect AdLogic has become the benchmark for digital signage powered ad networks, delivering nearly 50 million ads daily. The acquisition of Reflect also brought to the Company a media sales division with the expertise and relationships to help any digital signage venue owner develop and execute a monetization plan for their network.
Use of Non-GAAP Measures
Creative Realities, Inc. prepares its consolidated financial statements in accordance with United States generally accepted accounting principles (“GAAP”). In addition to disclosing financial results prepared in accordance with GAAP, the Company discloses information regarding “EBITDA” and “Adjusted EBITDA.” CRI defines “EBITDA” as earnings before interest, income taxes, depreciation and amortization of intangibles. CRI defines “Adjusted EBITDA” as EBITDA excluding stock-based compensation, fair value adjustments and both cash and non-cash non-recurring gains and charges. EBITDA and Adjusted EBITDA are not measures of performance defined in accordance with GAAP. However, EBITDA and Adjusted EBITDA are used internally in planning and evaluating the Company’s operating performance. Accordingly, management believes that disclosure of these metrics offers investors, bankers and other stakeholders an additional view of the Company’s operations that, when coupled with the GAAP results, provides a more complete understanding of the Company’s financial results.
EBITDA and Adjusted EBITDA should not be considered as an alternative to net income/(loss) or to net cash used in operating activities as measures of operating results or liquidity. Our calculation of EBITDA and Adjusted EBITDA may not be comparable to similarly titled measures used by other companies, and the measures exclude financial information that some may consider important in evaluating the Company’s performance. A reconciliation of GAAP net income/(loss) to EBITDA and Adjusted EBITDA is included in the accompanying financial schedules.
For further information, please refer to Creative Realities, Inc.’s filings available online at www.sec.gov, including its Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 30, 2023.
Cautionary Note on Forward-Looking Statements
This press release contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995, and includes, among other things, discussions of our business strategies, product releases, future operations and capital resources. Words such as "estimates," "projected," "expects," "anticipates," "forecasts," "plans," "intends," "believes," "seeks," "may," "will," "should," "future," "propose" and variations of these words or similar expressions (or the negative versions of such words or expressions) are intended to identify forward-looking statements. Forward-looking statements are not guarantees of future performance, conditions or results. They are based on the opinions, estimates and beliefs of management as of the date such statements are made, and they are subject to known and unknown risks, uncertainties, assumptions and other factors, many of which are outside of our control, that may cause the actual results, level of activity, performance or achievements to be materially different from those expressed or implied by such forward-looking statements. Some of these risks are discussed in the “Risk Factors” section contained in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2022 and in our Quarterly Report on Form 10-Q for the period ended June 30, 2023, and the Company’s subsequent filings with the U.S. Securities and Exchange Commission. Important factors, among others, that may affect actual results or outcomes include: our strategy for customer retention, growth, product development, market position, financial results and reserves, our ability to execute on our business plan, our ability to retain key personnel, our ability to remain listed on the Nasdaq Capital Market, our ability to realize the revenues included in our future guidance and backlog reports, our ability to satisfy our upcoming debt obligations and other liabilities, the ability of the Company to continue as a going concern, potential litigation, supply chain shortages, and general economic and market conditions impacting demand for our products and services. Readers should not place undue reliance upon any forward-looking statements. We assume no obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
Contact
Christina Davies
cdavies@ideagrove.com
Investor Relations:
ir@cri.com
https://investors.cri.com/
CREATIVE REALITIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
|
September 30, |
December 31, |
|||||||
|
2023 |
2022 |
|||||||
|
(unaudited) |
||||||||
|
ASSETS |
||||||||
|
CURRENT ASSETS |
||||||||
|
Cash and cash equivalents |
$ | 8,376 | $ | 1,633 | ||||
|
Accounts receivable, net |
5,865 | 8,263 | ||||||
|
Work-in-process and inventories, net |
2,306 | 2,267 | ||||||
|
Prepaid expenses and other current assets |
960 | 1,819 | ||||||
|
Total current assets |
$ | 17,507 | $ | 13,982 | ||||
|
Property and equipment, net |
513 | 201 | ||||||
|
Operating lease right-of-use assets |
1,198 | 1,584 | ||||||
|
Intangibles, net |
23,975 | 23,752 | ||||||
|
Goodwill |
26,453 | 26,453 | ||||||
|
Other assets |
43 | 43 | ||||||
|
TOTAL ASSETS |
$ | 69,689 | $ | 66,015 | ||||
|
LIABILITIES AND SHAREHOLDERS’ EQUITY |
||||||||
|
CURRENT LIABILITIES |
||||||||
|
Accounts payable |
$ | 3,340 | $ | 3,757 | ||||
|
Accrued expenses |
4,499 | 3,828 | ||||||
|
Deferred revenues |
3,507 | 1,223 | ||||||
|
Customer deposits |
3,532 | 2,478 | ||||||
|
Current maturities of operating leases |
575 | 711 | ||||||
|
Short-term portion of Secured Promissory Note |
521 | 1,248 | ||||||
|
Short-term portion of related party Consolidation Term Loan, net of $747 and $745 discount, respectively |
3,690 | 1,251 | ||||||
|
Short-term related party Term Loan (2022) |
- | 2,000 | ||||||
|
Total current liabilities |
19,664 | 16,496 | ||||||
|
Long-term Secured Promissory Note |
- | 208 | ||||||
|
Long-term related party Acquisition Term Loan, net of $963 and $1,484 discount, respectively |
9,037 | 8,516 | ||||||
|
Long-term related party Consolidation Term Loan, net of $282 and $840 discount, respectively |
1,537 | 4,349 | ||||||
|
Long-term obligations under operating leases |
623 | 873 | ||||||
|
Contingent acquisition consideration, at fair value |
11,250 | 9,789 | ||||||
|
Other liabilities |
175 | 205 | ||||||
|
TOTAL LIABILITIES |
42,286 | 40,436 | ||||||
|
SHAREHOLDERS’ EQUITY |
||||||||
|
Common stock, $0.01 par value, 66,666 shares authorized; 10,409 and 7,266 shares issued and outstanding, respectively |
104 | 72 | ||||||
|
Additional paid-in capital |
82,064 | 75,916 | ||||||
|
Accumulated deficit |
(54,765 |
) |
(50,409 |
) |
||||
|
TOTAL SHAREHOLDERS’ EQUITY |
27,403 | 25,579 | ||||||
|
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY |
$ | 69,689 | $ | 66,015 | ||||
CREATIVE REALITIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
|
For the Three Months Ended |
For the Nine Months Ended |
|||||||||||||||
|
September 30, |
September 30, |
|||||||||||||||
|
2023 |
2022 |
2023 |
2022 |
|||||||||||||
|
Sales |
||||||||||||||||
|
Hardware |
$ | 4,847 | $ | 5,015 | $ | 12,606 | $ | 17,141 | ||||||||
|
Services and other |
6,721 | 6,165 | 18,102 | 15,719 | ||||||||||||
|
Total sales |
11,568 | 11,180 | 30,708 | 32,860 | ||||||||||||
|
Cost of sales |
||||||||||||||||
|
Hardware |
3,384 | 3,811 | 9,314 | 13,803 | ||||||||||||
|
Services and other |
2,881 | 2,855 | 6,704 | 5,989 | ||||||||||||
|
Total cost of sales |
6,265 | 6,666 | 16,018 | 19,792 | ||||||||||||
|
Gross profit |
5,303 | 4,514 | 14,690 | 13,068 | ||||||||||||
|
Operating expenses: |
||||||||||||||||
|
Sales and marketing expenses |
1,301 | 718 | 3,666 | 2,572 | ||||||||||||
|
Research and development expenses |
393 | 238 | 1,136 | 897 | ||||||||||||
|
General and administrative expenses |
2,632 | 2,847 | 8,125 | 8,269 | ||||||||||||
|
Depreciation and amortization expense |
817 | 885 | 2,393 | 2,060 | ||||||||||||
|
Deal and transaction expenses |
- | 110 | - | 538 | ||||||||||||
|
Total operating expenses |
5,143 | 4,798 | 15,320 | 14,336 | ||||||||||||
|
Operating income (loss) |
160 | (284 |
) |
(630 |
) |
(1,268 |
) |
|||||||||
|
Other income (expenses): |
||||||||||||||||
|
Interest expense, including amortization of debt discount |
(734 |
) |
(757 |
) |
(2,324 |
) |
(1,956 |
) |
||||||||
|
Change in fair value of warrant liability |
- | - | - | 7,902 | ||||||||||||
|
Change in fair value of equity guarantee |
(1,369 |
) |
442 | (1,461 |
) |
369 | ||||||||||
|
Loss on debt waiver consent |
- | - | - | (1,212 |
) |
|||||||||||
|
Loss on warrant amendment |
- | - | - | (345 |
) |
|||||||||||
|
Gain/(loss) on settlement of obligations |
- | 37 | - | (237 |
) |
|||||||||||
|
Other income (expense) |
(3 |
) |
(2 |
) |
132 | 3 | ||||||||||
|
Total other income (expense) |
(2,106 |
) |
(280 |
) |
(3,653 |
) |
4,524 | |||||||||
|
Net (loss) income before income taxes |
(1,946 |
) |
(564 |
) |
(4,283 |
) |
3,256 | |||||||||
|
Benefit (provision) for income taxes |
15 | 10 | (73 |
) |
(46 |
) |
||||||||||
|
Net (loss) income |
$ | (1,931 |
) |
$ | (554 |
) |
$ | (4,356 |
) |
$ | 3,210 | |||||
|
Basic (loss) earnings per common share |
$ | (0.22 |
) |
$ | (0.08 |
) |
$ | (0.56 |
) |
$ | 0.50 | |||||
|
Diluted (loss) earnings per common share |
$ | (0.22 |
) |
$ | (0.08 |
) |
$ | (0.56 |
) |
$ | 0.50 | |||||
|
Weighted average shares outstanding - basic |
8,713 | 7,250 | 7,775 | 6,461 | ||||||||||||
|
Weighted average shares outstanding - diluted |
8,713 | 7,250 | 7,775 | 6,461 | ||||||||||||
CREATIVE REALITIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
|
Nine Months Ended |
||||||||
|
September 30, |
||||||||
|
2023 |
2022 |
|||||||
|
Operating Activities: |
||||||||
|
Net (loss) income |
$ | (4,356 |
) |
$ | 3,210 | |||
|
Adjustments to reconcile net (loss) income to net cash provided by operating activities |
||||||||
|
Depreciation and amortization |
2,393 | 2,060 | ||||||
|
Amortization of debt discount |
1,078 | 904 | ||||||
|
Amortization of stock-based compensation |
539 | 1,587 | ||||||
|
Loss on debt waiver consent |
- | 1,212 | ||||||
|
Loss on warrant amendment |
- | 345 | ||||||
|
Loss on settlement of obligations |
- | 237 | ||||||
|
Bad debt expense |
318 | 105 | ||||||
|
Gain on change in fair value of warrants |
- | (7,902 |
) |
|||||
|
Loss (Gain) on change in fair value of contingent consideration |
1,461 | (369 |
) |
|||||
|
Deferred income taxes |
44 | - | ||||||
|
Changes to operating assets and liabilities: |
||||||||
|
Accounts receivable |
2,080 | (2,835 |
) |
|||||
|
Work-in-process and inventories |
(39 |
) |
(1,032 |
) |
||||
|
Prepaid expenses and other current assets |
859 | 682 | ||||||
|
Accounts payable |
(53 |
) |
(227 |
) |
||||
|
Accrued expenses |
683 | 533 | ||||||
|
Deferred revenues |
2,284 | 1,019 | ||||||
|
Customer deposits |
1,054 | (585 |
) |
|||||
|
Other |
(39 |
) |
6 | |||||
|
Net cash provided by (used in) operating activities |
8,306 | (1,050 |
) |
|||||
|
Investing activities |
||||||||
|
Acquisition of business, net of cash acquired |
- | (17,186 |
) |
|||||
|
Purchases of property and equipment |
(287 |
) |
(123 |
) |
||||
|
Capitalization of labor for software development |
(2,851 |
) |
(2,959 |
) |
||||
|
Net cash used in investing activities |
(3,138 |
) |
(20,268 |
) |
||||
|
Financing activities |
||||||||
|
Principal payments on finance leases |
(14 |
) |
- | |||||
|
Proceeds from sale of common stock, net of offering expenses |
5,454 | - | ||||||
|
Proceeds from sale of common stock in PIPE, net of offering expenses |
- | 1,814 | ||||||
|
Proceeds from sale & exercise of pre-funded warrants in PIPE, net of offering expenses |
- | 8,295 | ||||||
|
Proceeds from Acquisition Loan, net of offering expenses |
- | 9,868 | ||||||
|
Repayment of Term Loan (2022) |
(2,000 |
) |
- | |||||
|
Repayment of Consolidation Term Loan |
(930 |
) |
- | |||||
|
Repayment of Secured Promissory Note |
(935 |
) |
(723 |
) |
||||
|
Net cash provided by financing activities |
1,575 | 19,254 | ||||||
|
Increase (decrease) in Cash and Cash Equivalents |
6,743 | (2,064 |
) |
|||||
|
Cash and Cash Equivalents, beginning of period |
1,633 | 2,883 | ||||||
|
Cash and Cash Equivalents, end of period |
$ | 8,376 | $ | 819 | ||||
RECONCILIATION OF GAAP NET LOSS TO ADJUSTED EBITDA
(in thousands, unaudited)
Creative Realities, Inc. prepares its consolidated financial statements in accordance with United States generally accepted accounting principles (“GAAP”). In addition to disclosing financial results prepared in accordance with GAAP, the Company discloses information regarding “EBITDA” and “Adjusted EBITDA.” CRI defines “EBITDA” as earnings before interest, income taxes, depreciation and amortization of intangibles. CRI defines “Adjusted EBITDA” as EBITDA excluding stock-based compensation, fair value adjustments and both cash and non-cash non-recurring gains and charges.
EBITDA and Adjusted EBITDA are non-GAAP financial measures and should not be considered as a substitute for net income (loss), operating income (loss) or any other performance measure derived in accordance with United States generally accepted accounting principles (“GAAP”) or as an alternative to net cash provided by operating activities as a measure of CRI’s profitability or liquidity. CRI’s management believes EBITDA and Adjusted EBITDA are useful financial metrics because they allow external users of CRI’s financial statements, such as industry analysts, investors, lenders and rating agencies, to more effectively evaluate CRI’s operating performance, compare the results of its operations from period to period and against CRI’s peers without regard to CRI’s financing methods, hedging positions or capital structure and because it highlights trends in CRI’s business that may not otherwise be apparent when relying solely on GAAP measures. CRI also presents EBITDA and Adjusted EBITDA because it believes EBITDA and Adjusted EBITDA are important supplemental measures of its performance that are frequently used by others in evaluating companies in its industry. Because EBITDA and Adjusted EBITDA exclude some, but not all, items that affect net income (loss) and may vary among companies, the EBITDA and Adjusted EBITDA CRI presents may not be comparable to similarly titled measures of other companies.
The following table presents a reconciliation of EBITDA and Adjusted EBITDA from net loss, CRI’s most directly comparable financial measure calculated and presented in accordance with GAAP.
|
Quarters Ended |
||||||||||||||||||||
|
September 30 |
June 30 |
March 31 |
December 31 |
September 30 |
||||||||||||||||
|
Quarters ended |
2023 |
2023 |
2023 |
2022 |
2022 |
|||||||||||||||
|
GAAP net loss |
$ | (1,931 |
) |
$ | (1,425 |
) |
$ | (1,000 |
) |
$ | (1,334 |
) |
$ | (554 |
) |
|||||
|
Interest expense: |
||||||||||||||||||||
|
Amortization of debt discount |
363 | 358 | 356 | 364 | 363 | |||||||||||||||
|
Other interest, net |
371 | 429 | 447 | 423 | 394 | |||||||||||||||
|
Depreciation/amortization: |
||||||||||||||||||||
|
Amortization of intangible assets |
766 | 754 | 754 | 743 | 848 | |||||||||||||||
|
Amortization of employee share-based awards |
3 | 151 | 225 | 448 | 456 | |||||||||||||||
|
Depreciation of property & equipment |
50 | 43 | 25 | 30 | 37 | |||||||||||||||
|
Income tax expense/(benefit) |
(15 |
) |
45 | 43 | 33 | (10 |
) |
|||||||||||||
|
EBITDA |
$ | (393 |
) |
$ | 355 | $ | 850 | $ | 707 | $ | 1,534 | |||||||||
|
Adjustments |
||||||||||||||||||||
|
Gain on settlement of obligations |
- | - | - | - | (37 |
) |
||||||||||||||
|
Loss (Gain) on fair value of equity guarantee |
1,369 | 16 | 76 | (705 |
) |
(442 |
) |
|||||||||||||
|
Disposal of Safe Space Solutions inventory |
- | - | - | 909 | - | |||||||||||||||
|
Deal and transaction expenses |
- | - | - | 54 | 110 | |||||||||||||||
|
Other expense (income) |
3 | (123 |
) |
(12 |
) |
7 | 2 | |||||||||||||
|
Stock-based compensation – Director grants |
43 | 43 | 43 | 56 | 82 | |||||||||||||||
|
Adjusted EBITDA |
$ | 1,022 | $ | 291 | 957 | 1,028 | 1,249 | |||||||||||||