Shareholders

As of March 23, 2018, there were approximately 504February 27, 2020, we had 371 holders of record of our common stock. The actual number of stockholders is greater than this number of record holders, and includes stockholders who are beneficial owners, but whose shares are held in street name by brokers and other nominees. This number of holders of record also does not include stockholders whose shares may be held in trust by other entities.

Dividend Policy

We have never declared or paid cash dividends on our common stock. We currently intend to retain future earnings, if any, to operate and expand our business and to finance the development and expansion of our business, subject to our obligation to pay dividends to our preferred stockholders as described below.business. We do not anticipate paying cash dividends on our common stock in the foreseeable future. Any payment of cash dividends in the future will be at the discretion of our boardBoard of directorsDirectors and will depend upon our results of operations, earnings, capital requirements, contractual restrictions and other factors deemed relevant by our boardBoard of directors. Directors.

Holders of our common stock are entitled to share pro rata in dividends and distributions with respect to the common stock when, as and if declared by our Board of Directors out of funds legally available therefor. In addition, we must first pay dividends on our Series A Convertible Preferred Stock, which have priority over any dividends to be paid to holders of our common stock. The current dividend payable to the holders of Series A Convertible Preferred Stock has been satisfied through the issuance of preferred and common stock. The current dividend for the Series A Convertible Preferred Stock aggregates to up to approximately $175 on a semi-annual basis (which we may be able to satisfy our dividend-payment obligations relating to the Series A Convertible Preferred Stock through the issuance of additional shares of preferred stock through August 20, 2017 and thereafter the issuance of additional shares of common stock). Other than with respect to shares of Series A Convertible Preferred Stock,Our future dividend policy is subject to the sole discretion of our Board of Directors and will depend upon a number of factors, including future earnings, capital requirements and our financial condition.

Securities Authorized for Issuance Under Equity Compensation Plans

See “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” in Item 12 for information regarding securities authorized for issuance under our equity compensation plans.

Recent Sales of Unregistered Securities During the Fiscal Year 2017

Common Stock

During 2017, accredited investors converted 385,200 shares of Series A Convertible Preferred Stock and 1,860,561 shares of Series A-1 Convertible Preferred Stock for 8,806,906 shares of common stock at the conversion rate of $0.255 per share. These shares were issued pursuant to the private placement exemptions provided under Section 4(a)(2) and 4(a)(6) of the Securities Act. 

Effective December 31, 2017, we issued 718,840 shares of common stock in satisfaction of the Series A Convertible Preferred Stock dividend for the period July 1, 2017 through December 31, 2017. The preferred stock entitles its holders to a 6% dividend, payable semi-annually in cash or in kind through the three-year anniversary of the original issue date, and from and after such three-year anniversary in duly authorized, validly issued, fully paid and non-assessable shares of common stock. The three-year anniversary of the initial investment date occurred during the second half of 2017 for $5.2 million of the $5.5 million originally issued Convertible Preferred Stock and therefore dividends on those investments were paid via issuance of common shares as of the year-end date. The common stock we issued as dividends on account of our Series A Convertible Preferred Stock was issued pursuant to the private placement exemptions provided under Section 4(a)(2) and 4(a)(6) of the Securities Act.

During 2016, accredited investors converted 307,500 shares of Convertible Preferred Stock for 1,205,882 shares of common stock. These shares were issued pursuant to the private placement exemptions provided under Section 4(a)(2) and 4(a)(6) of the Securities Act.

Secured Notes

On December 12, 2016, we30, 2019, the Company entered into a $1.0 million secured revolving promissory note pursuantSeventh Amendment to Loan and Security Agreement (the “Seventh Amendment”) with its subsidiaries and Slipstream Communications, LLC (“Lender”). Pursuant to the August 17, 2016Seventh Amendment, Lender made a $2,000 loan to the Company (the “Special Loan”) under the terms of the Company’s existing Loan and Security Agreement with Slipstream Communications, LLC,Lender (as amended by the Seventh Amendment, the “Loan Agreement”). The Special Loan is evidenced by a related party, addressed below, withSecured Convertible Special Loan Promissory Note (the “Note”). The Note bears simple interest thereon at 8% per annum, maturing onof which 6% is payable in cash (the “Interest”) and 2% is payable in kind as additional principal under the Note (“Additional Principal”), which is payable monthly commencing February 1, 2017. In connection with the loan, we issued the lender a five-year warrant to purchase up to 1,542,452 shares of common stock at a per-share price of $0.28 (subject to adjustment), all pursuant to a securities purchase agreement.2020. The fair valueentire unpaid principal balance of the warrantsNote (including the Additional Principal) together with all accrued but unpaid interest is due on June 30, 2021 (the “Maturity Date”). The Company may prepay the Note, in whole or in part, at any time and from time to time, without penalty or premium. The principal (including the Additional Principal) and accrued but unpaid interest will be converted into a new class of senior preferred stock of the Company upon any event of default or in the event that the Company does not refinance the Note prior to October 1, 2020, with such class of senior preferred stock of the Company to be created in advance of such conversion, having those rights and preferences set forth in the Loan Agreement and as otherwise agreed to by the Company and Lender. For this issuance, we relied on the issuance date was $136. This note was repaid on January 12, 2017. These securities transactions were effected pursuant to the private placementstatutory exemptions providedfrom registration under Section 4(a)(2) and 4(a)(6) of the Securities Act.Act, including Rule 506 promulgated thereunder. We relied on this exemption based on the fact that the investor was an accredited investor.

Share Repurchase Program

On August 9, 2017, our Board of Directors authorized a program to repurchase up to 5 million shares of our outstanding common stock through August 9, 2019. The authorization allows for the repurchases to be conducted through open market or privately negotiated transactions. Shares acquired under the stock repurchase program are expected to be retired and returned to the status of authorized but unissued shares of common stock. The stock repurchase program can be suspended, modified or discontinued at any time at our discretion.  During the fourth quarter of 2017, 1,185,968 shares of common stock were repurchased at an aggregate price of $149 and were immediately cancelled, as follows:

Not applicable.

(All currency is rounded to the nearest thousands, except share and per share amounts.) 

Forward-Looking Statements 

The following discussion contains various forward-looking statements within the meaning of Section 21E of the Exchange Act. Although we believe that, in making any such statement, our expectations are based on reasonable assumptions, any such statement may be influenced by factors that could cause actual outcomes and results to be materially different from those projected. When used in the following discussion, the words “anticipates,” “believes,” “expects,” “intends,” “plans,” “estimates” and similar expressions, as they relate to us or our management, are intended to identify such forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from those anticipated. Factors that could cause actual results to differ materially from those anticipated, certain of which are beyond our control, are set forth in Item 1A under the caption “Risk Factors.”

Our actual results, performance or achievements could differ materially from those expressed in, or implied by, forward-looking statements. Accordingly, we cannot be certain that any of the events anticipated by forward-looking statements will occur or, if any of them do occur, what impact they will have on us. We caution you to keep in mind the cautions and risks described in this document and to refrain from attributing undue certainty to any forward-looking statements, which speak only as of the date of the document in which they appear. We do not undertake to update any forward-looking statement.

Overview

Creative Realities, Inc. is a Minnesota corporation that provides innovative digital marketing technology solutions to retaila broad range of companies, individual retail brands, enterprises, and organizations throughout the United States and in certain international markets. We have expertise in a broad range of existing and emerging digital marketing technologies across 18 vertical markets, as well as the related media management and distribution software platforms and networks, device and content management, product management, customized software service layers, systems, experiences, workflows, and integrated solutions. Our technology and solutions include: digital merchandising systems and omni-channel customer engagement systems,systems; content creation, production and scheduling programs and systems; a comprehensive series of recurring maintenance, support, and field service offerings; interactive digital shopping assistants, advisors and kiosks,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. (f/k/a Wireless Ronin Technologies, Inc.), and under our wholly owned subsidiaries Allure Global Solutions, Inc., a Georgia corporation, Creative Realities LLC, a Delaware limited liability company, Wireless Ronin Technologies Canada, Inc., a Canadian corporation, and ConeXus World Global, LLC, a Kentucky limited liability company. Our other wholly owned subsidiary Creative Realities, LLC, a Delaware limited liability company, has been effectively dormant since October 2015, the date of the merger with ConeXus World Global, LLC.

We generate revenue in thisour business by:

These activities generate revenue through: bundled-solution sales; service fees for consulting services, experience design, content development and production, software development, engineering, implementation, and field services; software license fees; and maintenance and support services related to our software, managed systems and solutions.

Our Sources of Revenue

We generate revenue through digital marketing solution sales, which include system hardware, professional and implementation services, software design and development, software licensing, deployment, and maintenance and support services.

We currently market and sell our technology and solutions primarily through our sales and business development personnel, but we also utilize agents, strategic partners, and lead generators who provide us with access to additional sales, business development and licensing opportunities.

Our Expenses

Our expenses are primarily comprised of three categories: sales and marketing, research and development, and general and administrative. Sales and marketing expenses include salaries and benefits for our sales, business development solution management and marketing personnel, and commissions paid on sales. This category also includes amounts spent on marketing networking events, promotional materials, hardware and software to prospective new customers, including those expenses incurred in trade shows and product demonstrations, and other related expenses. Our research and development expenses represent the salaries and benefits of those individuals who develop and maintain our proprietary software platforms and other software applications we design and sell to our customers. Our general and administrative expenses consist of corporate overhead, including administrative salaries, real property lease payments, salaries and benefits for our corporate officers and other expenses such as legal and accounting fees.

Critical Accounting Policies and Estimates

Our management is responsible for our financial statements and has evaluated the accounting policies to be used in their preparation. Our management believes these policies are reasonable and appropriate. The Company’s significant accounting policies are described in Note 2Summary of Significant Accounting Policies of the Company’s consolidated financial statementsConsolidated Financial Statements included within Part II, ITEM 8 of this Report. The following discussion identifies those accounting policies that we believe are critical in the preparation of our financial statements, the judgments and uncertainties affecting the application of those policies and the possibility that materially different amounts will be reported under different conditions or using different assumptions.

The preparation of financial statements in conformity with GAAP requires that management make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of commitments and contingencies at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Our actual results could differ from those estimates.

Revenue Recognition

On January 1, 2018, we adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers (“ASC 606”) using the modified retrospective method for all contracts not completed as of the date of adoption. Results for reporting periods beginning on or after January 1, 2018 are presented under ASC 606, while prior period amounts are not adjusted and continue to be reported under the accounting standards in effect for the prior period. Under this method, we concluded that the cumulative effect of applying this guidance was not material to the financial statements and no adjustment to the opening balance of accumulated deficit was required on the adoption date.

Under ASC 606, we account for revenue using the following steps:

See Note 2 “SummarySummary of Significant Accounting Policies” in our Consolidated Financial Statements, included in Part II, ITEM 8 of this Report, for a complete discussion of our revenue recognition policies.

We recognize revenue primarily from these sources:

We recognize revenue in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 910, Contractors-Construction, ASC 605, Revenue Recognition, ASC 605-25, Accounting for Revenue Arrangements with Multiple Deliverables.and ASC subtopic 985-605, Software. In the event of a multiple-element arrangement, we evaluate each element of the transaction to determine if it represents a separate unit of accounting, taking into account all factors following the guidelines set forth in FASB ASC 985-605-25-5:

On January 1, 2018, we adopted Accounting Standards Update (“ASU”) 2014-09, Revenue From Contracts with Customers (“ASU 2014-09,” as codified in “ASC 606”), which outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The adoption of the standard did not have a significant impact on our financial statements or our critical accounting policies related to revenue recognition. Based on our initial evaluation of the Company’s current contracts and the related revenue streams and performance obligations, the Company expects that the allocation of revenue between hardware, services and other will have insignificant changes as compared with current GAAP. However, for certain sales transactions, the timing of revenue recognition for hardware and certain services sales may occur earlier, with the remaining service and other sales, occurring later than under current GAAP. The largest impacts as a result of the new standard are the new required qualitative and quantitative disclosures. See Note 2, “Recently Issued Accounting Pronouncements,” in our Consolidated Financial Statements, included in Part II, ITEM 8 of this Report for additional information. 

Accounts Receivable

Our unsecured accounts receivable are customer obligations due under normal trade terms, carried at their face value less an allowance for doubtful accounts. We had a factoring arrangement with Allied Affiliated Funding for the majority of our accounts receivable during the period October 15, 2015 to August 16, 2016. We record an allowance for doubtful accounts receivable for amounts due from third parties that we do not expect to collect. We estimate the allowance based on historical write-off experience and current economic conditions and also consider factors such as customer credit, past transaction history with the customer and changes in customer payment terms when determining whether the collection of a receivable is reasonably assured. Historically, less than 1.0% of net sales ultimately prove to be uncollectible. Accounts receivable are written off after all reasonable collection efforts have failed.

We have not made any material changes in the accounting methodology we use to measure the estimated liability for doubtful accounts during the past two fiscal years. We do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we use to establish the liability for doubtful accounts. However, if actual results are not consistent with our estimates or assumptions, we may be exposed to losses or gains that could be material.

Approximately 51% or $3,017 of our accounts receivable at December 31, 2017 is from a related party (see Note 8).

Goodwill and Intangible Assets

Goodwill is evaluated for impairment annually as of September 30 and whenever events or circumstances make it more likely than not that impairment may have occurred. The Company hasWe have no indefinite-lived intangible assets. We test goodwill for impairment by comparing the book value to the fair value at the reporting unit level. The Company hasWe have only one reporting unit, and therefore the entire goodwill is allocated to that reporting unit. The fair value of the reporting unit is determined by using 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. We use these same expectations in other valuation models throughout the business. In addition to the discounted cash flow analysis, we utilize a leveraged buy-out model, trading comps and market capitalization to ultimately determine an estimated fair value of our reporting unit based on weighted average calculations from these models. The Company bases itsWe base our fair value estimates on assumptions it believeswe believe to be reasonable but that are unpredictable and inherently uncertain. If the carrying amount exceeds the fair value, further analysis is performed to measure the impairment loss.

In addition, the Company’sour market capitalization could fluctuate from time to time. Such fluctuation may be an indicator of possible impairment of goodwill if the Company’sour market capitalization falls below its book value. If this situation occurs, the Companywe will perform the required detailed analysis to determine if there is impairment.

We have not made any material changes in our reporting units or the accounting methodology we useused to assess impairment of goodwill since September 30, 2017.2019. We updated our goodwill analysis as of December 31, 20172019 using actual fourth quarter 20172019 results and updated projected 20182020 results and concluded no impairment exists. The valuation of goodwill and intangible assets is subject to a high degree of judgment, uncertainty and complexity. We do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we use to test for impairment losses on goodwill. However, if actual results are not consistent with our estimates or assumptions, we may be exposed to an impairment charge that could be material.

Intangible assets include the following and are being amortized over their estimated useful lives as follows:

Intangible assets are evaluated for impairment if events and circumstances warrant by comparing the fair value of the intangible asset with its carrying amount. The impairment evaluation involves testing the recoverability of the asset on an undiscounted cash-flow basis, and, if the asset is not recoverable, recognizing impairment charge, if necessary, to reduce the asset’s carrying amount to its fair value. There were no indicators of impairment identified in 2017. The Company recognized an impairment loss on its technology platform2019 and no impairments were recorded for the yearyears ended December 31, 2016.2019 or 2018.

Income Taxes

Accounting for income taxes requires recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities. These deferred taxes are measured by applying the provisions of tax laws in effect at the balance sheet date, including the impact of the Tax Cuts and Jobs Act (the “Tax Act”) enacted on December 22, 2017. The Tax Act made broad and significant changes to the U.S. tax code that affects the year ended December 31, 2017, including, but not limited to, a change in the federal rate from 35% to 21% effective January 1, 2018.

The Company recognizesWe recognize in income the effect of a change in tax rates on deferred tax assets and liabilities in the period that includes the enactment date.

As of December 31, 20172019 and 20162018, a full valuation allowance is recorded against our deferred tax assets to reduce the consolidated deferred tax asset to zero.zero, with the exception of those deferred tax assets generated by net operating losses post-Tax Act. The valuation allowance is based, in part, on our estimate of future taxable income, the expected utilization of federal and state tax loss carryforwards, and credits and the expiration dates of such tax loss carryforwards. Significant assumptions are used in developing the analysis of future taxable income for purposes of determining the valuation allowance for deferred tax assets which, in our opinion, are reasonable under the circumstances.

Fair Value of Financial Instruments

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). Inputs are broadly defined as assumptions market participants would use in pricing an asset or liability.

FASB ASC 820-10 Fair Value Measurements and Disclosures, requires disclosure of the estimated fair value of an entity’s financial instruments. Such disclosures, which pertain to the Company’s financial instruments, do not purport to represent the aggregate net fair value of the Company.

The carrying value of cash and cash equivalents, accounts receivable, accounts payable, and accrued liabilities approximate fair value because of the short maturity of those instruments. The fair value of the warrant liabilities is calculated using a Black-Scholes model, which approximates a binomial model due to probability factors used to determine the fair value. The calculation of this liability is based on Level 3 inputs. See Notes 3 and 11 for further discussion on the valuation of warrant liabilities.

Impact of Recently Issued Accounting Pronouncements

Refer to Note 2, “Recently3Recently Issued Accounting Pronouncements” in our Consolidated Financial Statements included in Part II, ITEM 8 of this Report, for a full description of recent accounting pronouncements, including the expected dates of adoption and estimated effects on results of operations and financial condition, which is incorporated herein by reference. 

Results of Operations

Note: All dollar amounts reported in Results of Operations are in thousands, except per-share information.

Year Ended December 31, 20172019 Compared to Year Ended December 31, 20162018

The tables presented below compare our results of operations adjusted for full retrospective adoption of certain accounting guidance described in Note 2 from one period to another, and present the results for each period and the change in those results from one period to another in both dollars and percentage change.

NM - not meaningful

Sales

Sales increased by $4,025$9,123, or 29%41% in 20172019 compared to 2016. The $4,025 increase was2018 driven by approximately $1,230(1) $3,458 from two new largecustomers in 2019, (2) $5,290 contributed by legacy Allure customers, and (3) expansion of revenue within pre-existing customer base. Organic growth accounted for approximately $4,434 of the broadeningincrease, representing an organic growth rate of sales within existing customer relationships, including an increaseapproximately 20% as compared to 2018. The remaining growth of approximately $4,689 year-over-year represents the revenue growth contributed by the inclusion of Allure in salesour consolidated results for a full year in 2019, which contributed approximately $601 revenue to a related party of $1,344. our consolidated 2018 results.

Gross Profit

Gross profit margin on a percentage basis decreased to 42% in 2017 from 50% in 2016, and increased by $531$3,516 in absolute dollars to $13,739 in 2019 from $10,223 in 2018, or 34% driven by an increase in sales, partially offset by a reduction in gross margin. Gross margin decreased from 45.5% for the year-ended December 31, 2018 to 43.5% in 2019 during the same period. The decrease in gross profit margin percentage and increase in absolute dollars isperiod, primarily the result of a lower margin sales mix on increased sales to customers. driven by product mix.

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. Total salesSales and marketing expenses increased by $269 or 13% in 2019 compared to $2,0782018 as a result of increased sales headcount following the Allure Acquisition and participation in 2017 from $1,061 in 2016. The increase was primarily due to an increase in payroll expense related to our growing sales forceincreased number of trade shows and related travel expenses.customer-facing events.

Research and Development Expenses

Research and development expenses increased 11%12% to $991$1,413 in 20172019 from $893$1,257 in 2016, primarily2018 as athe result of additional headcount focused on these activities. an increase in amortization expense related to capitalized software and salary costs driven by an increased investment in products and offerings in the most recent twelve months, including further development of the content management system application acquired by the Company as part of the acquisition of Allure in November 2018. Allure contributed approximately $31 in the period between the acquisition date and December 31, 2018.

General and Administrative Expenses

Total general and administrative expenses increased 9%decreased 6% to $6,944$9,092 in 20172019 from $6,393$9,714 in 2016.2018, a decrease of $622. The increase was primarily dueprimary drivers of this decrease were (1) $936 reduction in compensation expense related to an(a) shares of common stock granted to our current CEO during 2018 which did not recur in 2019 and (b) a reduction in amortization of stock compensation expenses as a result of previously issued option awards fully vesting in 2018 and 2019, and (2) $710 reduction in transaction costs incurred in 2018 as a result of the Allure Acquisition which did not recur in 2019, partially offset by (1) $480 increase in personnel costs, including recruiting fees, offset primarily by decreasesbonus expense in legal fees.2019 and (2) $408 increase in rent as a result of the Allure Acquisition and expansion of the Company’s headquarters.

Depreciation and Amortization Expenses

Depreciation and amortization expenses decreased 25%expense increased 5% from $1,185 in 2019 to $1,505$1,250 in 2018, driven by a combination of legacy Company recorded tangible and intangible assets reaching the end of their depreciable lives during the period and partially offset by increases in depreciation and amortization recorded for assets acquired in the Allure Acquisition for the period between the acquisition date and December 31, 2018.

Lease Termination Expense

On August 10, 2017, from $2,003we announced the planned closure of our office facilities located at 22 Audrey Place, Fairfield, New Jersey 07004, which housed our previous operations center and ceased use of the facilities in 2016 primarily asFebruary 2018. In ceasing use of these facilities, we recorded a one-time non-cash charge of $474 to accrue for the remaining rent under the lease term, net of anticipated subtenant rental income. Effective June 30, 2018, we entered into a settlement agreement to exit this lease agreement, resulting in the Company recording a gain on settlement of $39. There were no such lease terminations during 2019.

Gain on Earnout Liability

The Company completed an updated fair value analysis at December 31, 2019 of the contingent consideration earnout liability initially recorded at $250 in the opening balance sheet at the time of the Allure Acquisition on November 20, 2018. As a result of that analysis, the reductionCompany concluded the fair value of intangible assets from the impairment recognizedliability was $0, resulting in a gain of $250 in the third quarter of 2016.current year.

Interest Expense

See Note 6 9Loans Payableto the Consolidated Financial Statements for a discussion of the Company’s debt and related interest expense obligations. 

Change in Fair Value of Warrant Liability

All of the Company’s outstanding warrants classified as liabilities expired during the three months ended September 30, 2019. See Note 3 6Fair Value Measurementto the Consolidated Financial Statements for a discussion of the Company’s non-cash change in Warrant Liability.

Gain on Settlement of DebtObligations

During 2017,the year ended December 31, 2019, the Company settled and/or wrote off debtobligations of $1,159$3,178 for $288$1,132 cash payment and recognized a gain of $872. This debt included $693$2,046. $1,619 of payables previously recorded by our dissolved subsidiary Broadcast International, Inc, as we had exhausted all effortsthis gain related to identify and settle thesesettlement of legacy sales commissions due to a third-party vendor which were settled with a cash payment of $1,100 during the three-months ended December 31, 2019. The remaining settlements related to legacy accounts payable deemed to no longer be legal obligations in the first quarter of 2017.to vendors.

In August 2016,2018, the Company settled debtand/or wrote off obligations of $90$313 for $35$58 cash payment resulting in a gain on debt settlement of $55. In June 2016, the Company settled debt of $614 for $123 cash payment and the issuance of 409,347 shares of the Company’s restricted common stock, fair value at conversion date of $85, and recognized a gain on debt restructuring of $406. In conjunction with this debt settlement, an additional 809,842 shares$255. This obligation included $30 of restricted common stock were issuedaccrued wage labor liabilities no longer anticipated to investors for cash to facilitatebe pursued against the settlement of a portion of the $614 debt. In March 2016, the Company issued 8.00% nonconvertible promissory notes in favor of certain general unsecured creditors in the aggregate principal amount of $288 to settle an aggregate amount of $839 of accounts payable, accrued expenses and other liabilities. The aggregate amount of payables, accrued expenses and other liabilities was subsequently revised to $796. In September 2016, the amounts previously settled with nonconvertible promissory notes were paid in cash of $249 resulting in a gain on the debt settlement of $547. No gain was previously recorded.Company.

Debt Conversion Expense

The Company recorded debt conversion expense of $5,055 in connection with issuance of incentive shares issued upon conversion of the convertible promissory notes into common stock on November 19, 2018 in conjunction with the Public Offering. See Note 9Loans Payable to the Consolidated Financial Statements. There was no such corresponding activity and expense in 2019.

Dividends on Preferred Stock

The Company issued common stock dividends on Series A Convertible Preferred Stock of $345 during the year-ended December 31, 2018. There was no outstanding preferred stock in 2019 and no such dividends were issued during the year-ended December 31, 2019.

Preferred Stock Conversion Expense

The Company recorded preferred stock conversion expense of $3,932, which is reflected as a loss to common shareholders, in connection with issuance of incentive shares issued upon conversion of the Series A preferred stock into common stock on November 19, 2018 in conjunction with the Public Offering. See Note 13Convertible Preferred Stock to the Consolidated Financial Statements. There was no such corresponding activity and expense in 2019.

Summary Unaudited Quarterly Financial Information

The following represents unaudited financial information derived from the Company’s annual and quarterly financial statements, as adjusted for the retrospective adoption of ASU No. 2017-11:statements:

Supplemental Operating Results on a Non-GAAP Basis

The following non-GAAP data, which adjusts for the categories of expenses described below, is a non-GAAP financial measure. Our management believes that this non-GAAP financial measure is useful information for investors, shareholders and other stakeholders of our Company in gauging our results of operations on an ongoing basis. We believe that EBITDA is a performance measure and not a liquidity measure, and therefore a reconciliation between net loss/income and EBITDA and Adjusted EBITDA has been provided. EBITDA should not be considered as an alternative to net loss/income as an indicator of performance or as an alternative to cash flows from operating activities as an indicator of cash flows, in each case as determined in accordance with GAAP, or as a measure of liquidity. In addition, EBITDA does not take into account changes in certain assets and liabilities as well as interest and income taxes that can affect cash flows. We do not intend the presentation of these non-GAAP measures to be considered in isolation or as a substitute for results prepared in accordance with GAAP. These non-GAAP measures should be read only in conjunction with our consolidated financial statementsConsolidated Financial Statements prepared in accordance with GAAP.

Reconciliation of GAAP to Non-GAAP EBITDA

The following unaudited table presents the Company’s GAAP (Net Loss) measure, and the corresponding adjustments, to calculate “EBITDA” for the quarters ending December 31, 2017 and 2016, September 30, 2017 and 2016, June 30, 2017 and 2016 and March 31, 2017 and 2016, as adjusted for the retrospective adoption of ASU No. 2017-11:

Liquidity and Capital Resources

We haveproduced net income for the year ended December 31, 2019 but incurred a net lossesloss for the year ended December 31, 2018 and have negative cash flows from operating activities for the years endedas of December 31, 2017 and 2016.2019. As of December 31, 2017,2019, we had cash and cash equivalents of $1,003$2,534 and a working capital deficit of $(3,801). $2,449.

On November 13, 2017,6, 2019, Slipstream Communications, LLC, a related party, extended the maturity date of our term loan and revolver loan to August 17,June 30, 2021 through the Sixth Amendment to the Loan and Security Agreement, aligning the maturity date of our term loan and revolver loan with the Secured Disbursed Escrow Promissory Note.

On December 30, 2019, we entered into the Secured Convertible Special Loan Promissory Note (“Special Loan”) as part of the Seventh Amendment of the Loan and Security Agreement with Slipstream, under which we obtained $2,000, with interest thereon at 8% per annum payable 6% in cash and 2% via the issuance of paid-in-kind (“SLPIK”) interest, provided however that upon occurrence of an event of default the interest rate shall automatically be increased by 6% per annum payable in cash. The entry into the Seventh Amendment adjusted the interest rate on the Company’s Term Loan and Revolving Loan to 8% per annum, provided, however, at all times when the aggregate outstanding principal amount of the Term Loan and the Revolving Loan exceeds $4,100 then the Loan Rate shall be 10%, of which eight percent 8% shall be payable in cash and 2% shall be paid by the issuance of and treated as additional PIK.

Upon the earlier to occur of an Event of Default or October 1, 2020, if any of the principal amount of the Special Loan is then outstanding, the principal and accrued but unpaid interest of the Special Loan and the outstanding SLPIK shall be automatically converted into shares of a new series of Senior Convertible Preferred Stock of CRI ("New Preferred") having an Appraised Value equal to three times the then outstanding principal amount and accrued but unpaid interest of the Special Loan and the outstanding SLPIK and having the following terms and conditions, as reasonably determined by CRI and the Lender, the New Preferred shall:

On November 9, 2018, Slipstream extended the maturity date of our promissory notes on a rolling quarter addition basis which is now April 10, 2019. While management believes that dueterm loan and revolving loan to August 16, 2020. In conjunction with the extension of our debtthe maturity date of our currentterm loan, we agreed that the cash balanceportion of the interest rate would increase from 8.0% per annum to 10.0% per annum effective July 1, 2019.

Management believes that, based on (i) the extension of the maturity date on our term loan and revolving loans, and (ii) our operational forecast for 2018,through 2021, we can continue as a going concern through at least March 31, 2019,2021. However, given our net losses, cash used in operating activities and working capital deficit, we obtained a continued support letter from Slipstream Communications, LLC through March 31, 2019.2021. We can provide no assurance that our ongoing operational efforts will be successful which could have a material adverse effect on our results of operations and cash flows.

See Note 6 9Loans Payableto the Consolidated Financial Statements for an additional discussion of the Company’s debt obligations.

Operating Activities

We do not currently generate positive cash flow. Our operational costs have been greater than sales generated to date. As of December 31, 2017,2019, we had an accumulated deficit of $(26,231).$35,643. The cash flows provided by / used in operating activities was $655($970) and ($4,106)1,564) for the years ended December 31, 20172019 and 2016,2018, respectively. The majority of the cash consumed by operations for both periods was attributed to our net losses of $(6,950) and $(4,698) forlosses. For the years ended December 31, 20172019 and 2016,2018, our net loss attributable to common shareholders was $(1,008) and ($15,191) when adjusted for gain on settlements of obligations, respectively. Included in our net losses were non-cash charges consisting of depreciation, amortization of debt discount related to convertible preferred stock / issued for debt-issuance costs, change in warrant liability, impairment on intangible assets, stock-based compensation, stock issuance expenses related to the ConeXus acquistionAllure acquisition, settlement of lease termination, and changes in the allowance for doubtful accounts totaling $4,669$2,420 and $4,320$2,951 for the years ended December 31, 20172019 and 2016,2018, respectively.

Investing Activities

Net cash used in investing activities during the yearyears ended December 31, 2017 was $(569)2019 were $(687) compared to $(292)($6,582) during 2016.2018. The increasedecrease in cash used in investing activities is primarily due to more capital expenditurescompletion of our acquisition of Allure during the period.prior period, partially offset by the loss recorded on conversion of related party promissory notes, and the current year proceeds from net working capital settlement. We currently do not have any material commitments for capital expenditures as of December 31, 2017,2019, nor do we anticipate any significant expenditures for investing in 2018. 2020.

Financing Activities

Net cash used in financing activities during the year ended December 31, 2017 was $(435) compared to net cash provided by financing activities during the yearyears ended December 31, 2016 of $4,389.2019 and 2018 was $1,473 and $9,861, respectively. The decrease is mainly duewas driven by smaller loans from a related party in 2019 as compared to the issuanceproceeds from of new debt financing and warrantsour public offering in 2016.November 2018. 

Off-Balance Sheet Arrangements

During the year ended December 31, 2017,2019, we did not engage in any off-balance sheet arrangements set forth in Item 303(a) (4) of Regulation S-K.

Not applicable.

See Index to Consolidated Financial Statements on Page F-1.

None

Evaluation of Disclosure Controls and Procedures

The Company,An evaluation was performed under the supervision and with the participation of itsour management, including theour Chief Executive Officer (principal executive officer) and the Chief Financial Officer (principal financial officer), evaluatedof the effectiveness of the design and operation of the Company’s “disclosureour disclosure controls and procedures” (asprocedures, as defined in RuleRules 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, theour management, including our Chief Executive Officer and the Chief Financial Officer, concluded that the Company’sour disclosure controls and procedures were not effective atas of December 31, 2019, and designed to ensure that information required to be disclosed by us in reports that we file or submit under the reasonable assurance level dueExchange 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 the material weaknesses described below.our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Management’s Annual Report on Internal Control Over Financial Reporting 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.of achieving their control objectives.

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of our internal control over financial reporting as of December 31, 20172019 based on the framework in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”("COSO"). Based on our assessment and those criteria, management identifiedbelieves that the Company’swe maintained effective internal control over financial reporting was not effective as of December 31, 2017 and that material weaknesses exist including: (1) a deficient process to close the monthly consolidated financial statements and prepare comprehensive and timely account analysis, (2) adequately identify and document multiple elements and deliverables, including allocation, deferral and cost estimates in support of revenue recognition, as well as not completing our analysis of the transition to and (3) the implementation and adoption of ASC 606Revenue Recognition. 

A material weakness is a control deficiency or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. Management has already implemented certain practices and procedures during 2017 to address the foregoing deficiencies, including the hiring of new accounting personnel and plans to expand the scope of its assessment of the effectiveness of its internal controls over financial reporting at the consolidated Company in 2018, and develop a plan to complete the remediation of the foregoing deficiencies. 

This annual report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s independent registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Company, as a smaller reporting company, to provide only management’s report in its annual report.2019.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the quarter ended December 31, 2017,2019, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

None.

PART III

Our Board of Directors consists of Alec MachielsDennis McGill (Chairman), RickRichard Mills (CEO), David Bell, Donald Harris, Patrick O’BrienJoseph Manko, and Eric Bertrand.Stephen Nesbit. The following table sets forth the name and position of each of our current directors and executive officers.

The biographies of the above-identified individuals are set forth below:

Alec MachielsDennis McGilljoined our Board of Directors in November 2019. Over the course of a 45-year career, Mr. McGill has served as a director, Chief Executive Officer or Chief Financial Officer of various public and private companies. From June 2015 to October 2017, Mr. McGill served as the President and CEO of ReCommunity Holdings II, Inc., the largest independent recycling processing company in the US, processing over 1.8 million tons of material annually and employing a team of 1,600 members. Mr. McGill served on the Board of Directors for Lighting Science Group Corp. (“LSGC”) from March 2015 to July 2017 while the company was publicly traded. Mr. McGill also served as the LSGC’s Interim Chief Operating Officer from June 2014 to September 2014 and as LSGC’s Interim Chief Financial Officer from July 2014 to December 2014. Mr. McGill joined Pegasus Capital as an operating advisor in December 2014 and remains in that capacity today. Since June 2014, Mr. McGill has also served on the board of directors of DGSE Companies, Inc., a company listed on the NYSE MKT that buys and sells jewelry, diamonds, fine watches, rare coins and currency (“DGSE”). Mr. McGill previously served on the board of directors of DGSE, ReCommunity Holdings, LP and Fiber Composites, LLC and served as the chairman of DGSE’s audit committee. From February 2013 to October 2013, Mr. McGill served as executive vice president and Chief Financial Officer of Heartland Automotive Services, Inc., where he actively participated with the senior management team to develop and roll-out a new business model. From September 2010 to February 2013, Mr. McGill served as executive vice president and Chief Financial Officer of Blockbuster LLC and was responsible for directing and managing various aspects of the Chapter 11 process. From March 2005 to July 2010, Mr. McGill served as executive vice president and Chief Financial Officer of Safety-Kleen Systems, Inc., during which time he led the company’s merger and acquisition efforts and grew the company from $0 to $160 million in EBITDA during his tenure. Mr. McGill holds a Bachelor of Science degree in Finance and Accounting and Master of Business Administration degree from the University of California, Berkeley and is a Partner at Pegasus Capital Advisors, L.P., a private equity fund manager, and Certified Public Accountant in the state of California.

David Belljoined our Board of Directors in August 2014 in connection with theour acquisition of Creative Realities, merger. Mr. Machiels is a member of the Executive, Investment and Sustainability Committees, as well as the co-chair of the Energy and Wellness Committees at Pegasus Capital Advisors, L.P.  He has over 17 years of private equity investing and investment banking experience.  Previously, Mr. Machiels was a Financial Analyst in the Financial Services Group at Goldman Sachs International in London and in the Private Equity Group at Goldman Sachs and Co. in New York.  Investments in which he has been highly involved in include Molycorp Minerals, Traxys, Pure Biofuels, Olympus, Slipstream Communications, Coffeyville Resources and Merisant Company.  Mr. Machiels currently serves on the boards of Pure Biofuels, Olympus, Slipstream Communications, NSI, and Valogix.  He was also a member of the Board of Trustees of the American Federation of Arts and Chair of its Endowment Committee 2011- 2013.  Mr. Machiels also co-founded Potentia Pharmaceuticals and Apellis Pharmaceuticals – two biotechnology companies in the complement immunotherapy space – as well as Revon Systems, a healthcare IT company.  Mr. Machiels is a graduate of Harvard Business School, KU Leuven Law School in Belgium and Konstanz University in Germany. 

David Bell joined our Board of Directors in August 2014 in connection with the Creative Realities merger.LLC. Mr. Bell brings over 40 years of advertising and marketing industry experience to the board, including serving as CEO of three of the largest companies in the industry–Bozell Worldwide, True North Communications and The Interpublic Group of Companies, Inc. Since 2007, Mr. Bell has led Slipstream Communications, LLC which is an international company providing strategic branding, digital marketing, and public relations services and served as a Senior Advisor to Google Inc. from 2006 to 2009. Mr. Bell previously served as an Operating Advisor at Pegasus Capital Advisors. He is currently a Senior Advisor to AOL and has been an Operating Advisor at Pegasus Capital Advisors since 2004. He has also served on the boards of multiple publicly traded companies, including Lighting Science Group Corporation and Point Blank Solutions, Inc., and Primedia, Inc., and served as President and CEO of The Interpublic Group of Companies Inc. from 2003 to 2005. Mr. Bell served as an independent director on the Board of Directors of Time, Inc. from June 2014 to January 2018.

Donald A. Harriswas appointed to our Board of Directors in August 2014 in connection with theour acquisition of Broadcast International, merger.Inc. He has been President of 1162 Management, and the General Partner of 5 Star Partnership, a private equity firm, since June 2006. Mr. Harris has been President and Chief Executive Officer of UbiquiTel Inc., a telecommunications company organized by Mr. Harris and other investors, since its inception in September 1999 and also its Chairman since May 2000. Mr. Harris served as the President of Comcast Cellular Communications Inc. from March 1992 to March 1997. Mr. Harris received a Bachelor of Science degree from the United States Military Academy and an MBA from Columbia University. Mr. Harris’s experience in the telecommunications industry and his association with private equity funding is valuable to the Company.

Richard Millsis currently our Chief Executive Officer.Officer and a member of our Board of Directors. Mr. Mills possesses over 32 years of industry experience. He was previously Chief Executive Officer of ConeXus World Global, a leading digital media services company, which he founded in 2010, and which was acquired by Creative Realities as reported herein.the Company. Prior to founding ConeXus, Mr. Mills was President and Director at Beacon Enterprise Solutions Group, Inc., a public telecom and technology infrastructure services provider. Previous to that, he joined publicly traded Pomeroy Computer Resources, Inc. in 1993 and served as Chief Operating Officer and a member of the Board of Directors from 1995 until 1999. Mr. Mills helped grow sales at Pomeroy during his time there from $100 million to $700 million. Mr. Mills was also a founder of Strategic Communications LLC.

Joseph Mankois an experienced Board member and Senior Principal in Horton Capital Management LLC, the investment manager for the Horton Capital Partners Fund, LP (“Horton Fund”), and significant shareholder in the Company. Mr. Manko was appointed to our Board in 2018. Mr. Manko has over 20 years of investment experience in the asset management, investment banking, private equity and corporate securities markets, including senior roles at Deutsche Bank in London and Merrill Lynch in Hong Kong. Prior to founding the Horton Fund, Mr. Manko was a Partner and Chief Executive Officer of Switzerland-based BZ Fund Management Limited. Mr. Manko has served on the board of several companies and currently serves as a director of Safeguard Scientifics, Inc., Wireless Telecom Group, Inc., and Repro Med Systems, Inc. (doing business as KORU Medical Systems). Mr. Manko began his career as a corporate finance attorney at Skadden, Arps, Slate, Meagher & Flom and earned both his B.A. and Juris Doctorate from the University of Pennsylvania.

Stephen Nesbit has been in the digital signage and digital advertising industry for over 20 years. He is currently the Managing Director of Prestonwood Trail Holdings LLC and has provided advisory services for companies in the Digital Signage and Digital Media Industry for the past 10 years.  He has directed and advised projects in North America, Europe, Asia proper, Southeast Asia, the Middle East, Australia and Africa. Prior to founding Prestonwood Trail, Mr. Nesbit was the President/COO at Reflect Systems, a prominent software and services company in the Digital Signage business. He joined Reflect after serving as President/COO of MarketForward, the Global Digital Media Division owned by the Publicis Groupe S.A. in Paris France.  Mr. Nesbit began his career in Digital Signage as the EVP Global Operations & GM International Business for Next Generation Network. NGN was one of the first Digital Place Based Advertising companies in the industry before its sale to Anschutz Investments where the company changed its name to National Cinemedia (NASDAQ: NCMI). He began his career at IBM in the Data Processing Division holding various field and HQ management positions. Mr. Nesbit also held management and executive positions at Wang Labs and BBN Communications Inc., the communications company that was the original architect of the Internet.  Mr. Nesbit holds an undergraduate degree from the University of Notre Dame and earned an MBA from the Indiana University Kelly Graduate School of Business.

John WalpuckWill Logan has servedjoined the Company as our Chief Operating OfficerVP of Finance in November 2017 and was promoted to the position of Chief Financial Officer since April 2014.effective May 16, 2018. From January 2007 until November 2017, Mr. WalpuckLogan was employed by Ernst & Young in the assurance services group where he primarily served large public companies, including a two-year international rotation in London, UK in the asset management practice. He brings over 25ten years of experience in financialSEC reporting, technical accounting matters and general management to Creative Realities, and over 20 years of experience in a broad range of digital media services, software, Internet services, online businesses, virtualization, and other technology industry sectors. Prior to Creative Realities, Mr. Walpuck served as the Chief Operating Officer and Chief Financial Officer of AllDigital, Inc. a digital broadcasting solutions company for the period from 2010 through 2013. Mr. Walpuck also served as the President and CEO of Disaboom, Inc., an online business and social network dedicated to people with disabilities, where he worked from 2007 to 2010. Prior to Disaboom, from 2005 to 2007, he served as the Senior Vice President and Chief Financial Officer of Nine Systems Corporation, a digital media services company. Mr. Walpuck has an MBA from the University of Chicago. He is a CMA, CPA and holds other professional certifications.

Patrick O’Brien has been a member of our Board of Directors since November 2015. Mr. O’Brien is the Managing Director& Principal of Granville Wolcott Advisors, which he formed in 2009 to provide consulting, due diligence and asset management services. Mr. O’Brien is a seasoned executive and business advisor, with 40 years of multi-unit international management experience with an emphasis in financial analysis and strategic business development. During the past five years, Mr. O’Brien has served on the boards of Merriman Holdings, Inc., Ironclad Performance Wear Corporation, Cinedigm, Inc., and is Chairman and CEO of LVI Liquidation Corp. (formerly Livevol, Inc.) He is a graduate of the Eli Broad School of Business of Michigan State University with BA in Hotel Management

Eric J. Bertrand joined our Board of Directors in May, 2016. Mr. Bertrand is the Chief Executive Officer and a partner of modop, a full-service advertising agency with offices in New York, Los Angeles, Miami, Portland and Panama City, Panama.  Prior to modop, Mr. Bertrand was a PE/VC fund manager, having invested $300 million in 60+ companies over the past 20 years.  Mr. Bertrand was a General Partner with Palisade Capital Management, where he jointly managed a private equity fund and venture capital funds.   Mr. Bertrand began his private equity career with Aetna’s Private Equity Group. Today, Mr. Bertrand is a Board Member of modop, Silverlight Digital, several privately held companiesSarbanes-Oxley compliance expertise as well as international charities, Unite For Sightexpertise in initial public offerings, acquisitions and the Alive Inside Foundation. Eric holds an MBAintegration. He has B.A. degrees in FinanceAccounting and Entrepreneurial StudiesEconomics from New York University. He graduated from BryantBellarmine University withand is a BS in Business Administration concentrating on Finance and Applied Actuarial Mathematics. Certified Public Accountant.

Under our corporate bylaws, all of our directors serve for indefinite terms expiring upon the next annual meeting of our shareholders. The holders of a majority of our outstanding Series A Convertible Preferred Stock also have the right, but not the obligation, to designate one person to serve as a director on our board. As of the date of this Annual Report, the preferred shareholders have not exercised this right.

When considering whether directors and nominees have the experience, qualifications, attributes and skills to enable the Board of Directors to satisfy its oversight responsibilities effectively in light of our business and structure, the Board of Directors focuses primarily on the industry and transactional experience, and other background, in addition to any unique skills or attributes associated with a director. With regard to Mr. Machiels,McGill, the Board of Directors considered his background and experience with the private investing marketrunning and his long-standing oversight of the Creative Realities business during such time as it was wholly owned by Pegasus Capital.accelerating growth at public companies. With regard to Mr. Bell, the Board considered his deep experience within the advertising and marketing industries and his prior management of large enterprises. With regard to Mr. Bertrand, the Board considered his deep experience within the media industry and significant private equity background. With regard to Mr. Mills, the Board of Directors considered his extensive background and experience in the industry. With regard to Mr. O’Brien,Manko, the Board of Directors considered his legal and corporate finance background as an advisor and extensive management experience. Finally, withprior experience on boards of directors. With regard to Mr. Harris, the Board of Directors considered his extensive experience in the telecommunications industry and association with private equity investors. Finally, with regard to Mr. Nesbit, the Board of Directors considered his extensive experience in the digital signage industry, having run several companies in the industry and acted as a consultant broadly for digital signage companies over the past twenty years.

The Board of Directors has determined that there are nopresently four “independent” directors as such term is defined in Section 5605(a)(2) of the Nasdaq listing rules, andeach of whom also meets the criteria for independence set forth in Rule 10A-3(b)(1) under the Securities Exchange Act of 1934. The preceding disclosure respecting director independence is required under applicable SEC rules. Nevertheless, as a corporation whose sharesdirectors whom the board has determined to be independent are listed for trading on the OTCQX Markets, we presently are not required to have any independent directorsMessrs. Bell, Harris, Manko and Nesbit.

The Board of Directors has determined that at all on our board, or any independent directors serving on any particular committeesleast two members of the Board, Mr. McGill and Mr. Bell, qualify as an “audit committee financial expert” as that term is defined in Regulation S-K promulgated under the Securities Exchange Act of Directors.1934. Each of Mr. McGill and Mr. Bell’s relevant experience in this regard is detailed above, which includes past employment experience in finance and through various Director roles at public companies, including experience on the Audit Committee for other publicly traded companies. Mr. Bell is deemed to be independent of the Company. The Board of Directors has determined that each director is able to read and understand fundamental financial statements.

Board Committees

Our Board of Directors has created a standing Compensation Committee and Audit Committee. Messrs. Manko, Nesbit and Bell serve on the Compensation Committee. Messrs. Bell, Harris and Manko serve on the Audit Committee. In the case of the Compensation Committee, Mr. Manko serves as chair, and in the case of the Audit Committee, Mr. Bell serves as chair. The Board of Directors has determined that at least one member of the board,Audit Committee, Mr. Machiels,Bell, is an “audit committee financial expert” as that term is defined in Regulation S-K promulgated under the Securities Exchange Act of 1934. Mr. Machiels’Bell’s relevant experience in this regard is detailed above, which includes past employment experience in financeabove. Mr. Bell, Mr. Harris and investment banking. Mr. Machiels is not anManko qualify as “independent” member of the board as described above. The Board of Directors has determined that each director serving on the Audit Committee is able to read and understand fundamental financial statements.

The Board and Committee Matters

The Company doesof Directors has not havecreated a standing nominatingseparate committee compensation committeefor nomination or audit committee.corporate governance. Instead, the entire Board of Directors shares the responsibility of identifying potential director-nominees to serve on the Board of Directors. Nevertheless, nominees to serve as directors on our Board of Directors making compensation decisions and performing the functions of an audit committee. The Board believes the engagement of allare selected by those directors in these functions is important at this time in the Company’s development in light of the Company’s recent acquisition activities.on our board who are independent.

Communications with Board Members

Our boardBoard of directorsDirectors has provided the following process for shareholders and interested parties to send communications to our board and/or individual directors. All communications should be addressed to Creative Realities, Inc., 13100 Magisterial Drive, Ste. 100, Louisville, KY 40223, Attention: Corporate Secretary. Communications to individual directors may also be made to such director at our company’s address. All communications sent to any individual director will be received directly by such individuals and will not be screened or reviewed by any company personnel. Any communications sent to the board in the care of the Corporate Secretary will be reviewed by the Corporate Secretary to ensure that such communications relate to the business of the company before being reviewed by the board.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Compliance with Section 16(a) of the Exchange Act

Section 16(a) of the Exchange Act requires our officers, directors and persons who own more than 10 percent of a registered class of our equity securities to file reports of ownership and changes in ownership with the SEC. Such officers, directors and shareholders are required by the SEC to furnish us with copies of all such reports. To our knowledge, based solely on a review of copies of reports filed with the SEC during 2017 and written representations from such persons that no other reports were required, all applicable Section 16(a) filing requirements were timely met except as follows: Richard Mills has not yet filed a report relating to the issuance of shares to him by the Company in connection with the Second Amendment to Agreement and Plan of Merger and Reorganization and Waiver, which agreement is an exhibit to this Annual Report on Form 10-K. 

Code of Ethics

We have adopted a Code of Business Conduct and Ethics that applies to all of our employees, officers (including our principal executive officer, principal financial officer, principal accounting officer or controller, and persons performing similar functions) and directors. Our Code of Business Conduct and Ethics satisfies the requirements of Item 406(b) of Regulation S-K. Our Code of Business Conduct and Ethics is available, free of charge, upon written request to our Corporate Secretary at 13100 Magisterial Drive, Ste. 100, Louisville, KY 40223.

Executive Compensation

Summary Compensation Table

The following table sets forth information concerning the compensation of our named executive officers for 20172019 and 2016:2018:

The material terms of employment agreements and payments to be made upon a change in control are discussed below, in the narrative following “Employment Agreements.”

Our named executive officers are eligible for retirement benefits on the same terms as non-executives under the company’sCompany’s defined contribution 401(k) retirement plan. Employees may contribute pretax compensation to the plan in accordance with current maximum contribution levels proscribed by the Internal Revenue Service. There are currently plans to implementBeginning on April 1, 2018, the Company began contributing an employer contribution match of 50% of employee wages up to 6%, for an effective match of 3% on April 1, 2018..

Richard Mills Employment Agreement

We employ Richard Mills as our Chief Executive Officer. Mr. Mills’ employment agreement is effective for a two-year term, which automatically renews for additional one-year periods unless either we or Mr. Mills elects not to extend the term. The agreement provides for an initial annual base salary of $270 subject to annual increases but generally not subject to decreases. Mr. Mills’ current annual base salary is $330. Under the agreement, Mr. Mills is eligible to participate in performance-based cash bonus or equity award plans for our senior executives. Mr. Mills will participate in our employee benefit plans, policies, programs, perquisites and arrangements to the extent he meets applicable eligibility requirements. In the event of a termination of employment for good reason, as defined, without cause, as defined, or within 12 months following a change in control, as defined, other than for reason of death, disability or for cause, any of which occur during the first year of Mr. Mills’ employment, Mr. Mills will be entitled to receive a severance payment equal to six months of his base salary. After the one-year anniversary of his employment (the current term of Mr. Mills’ employment is beyond the one-year anniversary), the severance amount increases to 12 months of then-current base salary. The agreement provides that any severance payments would be paid in installments over the course of the severance. The agreement contains certain non-solicitation and non-competition provisions that continue after employment for a period of one year. The agreement also contains other customary restrictive and other covenants relating to the confidentiality of information, the ownership of inventions and other matters.

Will Logan Employment Arrangement

Will Logan, the Company’s Chief Financial Officer, has an employment arrangement with the Company pursuant to which, during fiscal 2019, he received an annual base salary of $189 and a performance bonus of $25. Mr. Logan participates in our employee benefit plans, policies, programs, perquisites and arrangements to the extent he meets applicable eligibility requirements, and also received the stock options discussed under “Outstanding Equity Awards at Fiscal Year-End” below.

Outstanding Equity Awards at Fiscal Year-End

The following table sets forth certain information concerning outstanding stock options and restricted stock awards held by our named executive officers as of December 31, 2017:2019:

Director Compensation Table