Item 1. Business
ITEM 1
BUSINESS
(All currency is rounded to the nearest
thousand, except share and per share amounts.)
Our Company
Creative Realities, Inc. is a Minnesota
corporation that provides innovative digital marketing technology solutions to a broad range of companies, individual brands, enterprises,
and organizations throughout the United States and in certain international markets. We have expertise in a broad range of existing
and emerging digital marketing technologies across approximately 15 vertical markets, as well as the related media management and
distribution software platforms and networks, device and content management, product management, customized software service layers,
systems, experiences, workflows, and integrated solutions. Our technology and solutions include: digital merchandising systems
and omni-channel customer engagement systems; content creation, production and scheduling programs and systems; a comprehensive
series of recurring maintenance, support, and field service offerings; interactive digital shopping assistants, advisors and kiosks;
and, other interactive marketing technologies such as mobile, social media, point-of-sale transactions, beaconing and web-based
media that enable our customers to transform how they engage with consumers.
Our main operations are conducted directly
through Creative Realities, Inc. and our wholly owned subsidiary Creative Realities Canada, Inc., a Canadian corporation. Our other
wholly owned subsidiaries are effectively dormant: Creative Realities, LLC, a Delaware limited liability company, ConeXus World
Global, LLC, a Kentucky limited liability company, and Allure Global Solutions, Inc., a Georgia corporation.
We generate revenue by:
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consulting with our customers to determine the technologies and solutions required to achieve their specific goals, strategies, and objectives;
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designing our customers’ digital marketing experiences, content, and interfaces;
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engineering the systems architecture delivering the digital marketing experiences we design – both software and hardware – and integrating those systems into a customized, reliable, and effective digital marketing experience;
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managing the efficient, timely and cost-effective deployment of our digital marketing technology solutions for our customers;
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delivering and updating the content of our digital marketing technology solutions using a suite of advanced media, content, and network management software products; and
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maintaining our customers’ digital marketing technology solutions by: providing content production and related services; creating additional software-based features and functionality; hosting the solutions; monitoring solution service levels; and responding to and/or managing remote or onsite field service maintenance, troubleshooting and support calls.
These activities generate revenue through
bundled-solution sales; consulting services, experience design, content development and production, software development, engineering,
implementation, and field services; software subscription license fees; and maintenance and support services related to our software,
managed systems and solutions.
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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 digital marketing technology solutions
have application in a wide variety of industries. The industries in which we sell our solutions are established and include
automotive, apparel & accessories, banking, baby/children, beauty, CPG, department stores, digital out-of-home (“DOOH”),
electronics, fashion, fitness, foodservice/quick service restaurant (“QSR”), financial services, gaming, luxury, mass
merchants, mobile operators, and pharmacy retail; however, the planning, development, implementation and maintenance of technology-enabled
experiences involving combinations of digital marketing technologies is relatively new and evolving. Moreover, a number of
participants in these industries have only recently started considering or expanding the adoption of these types of technologies,
solutions and experiences as part of their overall marketing strategies. As a result, we remain without an established history
of profitability.
We believe that the adoption and evolution
of digital marketing technology solutions will increase substantially in years to come in the industries in which we currently
focus and in others; however, adoption has not yet accelerated to the extent we expected, in part due to delays in capital expenditures
from our current and potential customer base as a result of the COVID-19 pandemic. We also believe that adoption of our solutions
depends not only upon the services and solutions that we provide but also upon the cost of hardware used to process and display
content. While the costs of hardware configurations and software media players have historically decreased and we believe they
will continue to do so at an accelerating rate, flat panel displays and players typically constitute a large portion of the expenditure
customers make relative to the entire cost of implementing a digital marketing system implementation and can be a barrier to customer
deployment. As a result, we believe that the broader adoption of digital marketing technology solutions is likely to increase,
although we cannot predict the rate at which such adoption will occur.
Another key component of our business strategy,
given the evolving dynamics of the industry in which we operate, is to acquire and integrate other operating companies in the industry
in conjunction with pursuing our organic growth objectives. We believe that the selective acquisition and successful integration
of certain companies will: accelerate our growth in targeted vertical and operating markets; enable us to cost-effectively aggregate
multiple customer bases onto a single business and technology platform; provide us with greater operating scale on a consolidated
basis; enable us to leverage a common set of processes and tools, and cost efficiencies company-wide; and ultimately result in
higher operating profitability and cash flow from operations. Our management team evaluates acquisition opportunities on an ongoing
basis. Our management team and Board of Directors have broad experience with the execution, integration, and financing of acquisitions.
We believe that the COVID-19 pandemic has adversely affected our smaller competitors, and as a result, there may exist acquisition
opportunities in the future.We also believe that, based on the foregoing, we can successfully serve as a consolidator of multiple
business and technology platforms serving similar markets.
In addition to our historical product offerings
and solutions, in April 2020, we announced the joint launch of an AI-integrated non-contact temperature inspection kiosk known
as the “Thermal Mirror” with our partner, InReality, LLC for use by businesses as COVID-19 related workplace restrictions
are reduced or eliminated. The Thermal Mirror involves the development, marketing and sale of a new product to new customers involving
a joint effort with InReality compared to our historical products and services. The product also uses hardware and technologies
that have not been used with our other customers. Throughout 2020, the Company and InReality continued to develop incremental use
cases and subsequently launched a suite of Safe Space Solutions products addressing this market, each of which operate consistently
with our primary business model in that they represent a sale of hardware and a SaaS-based subscription license services contract.
You may read and copy any materials we file
with the SEC at the SEC’s public reference room at 100 F Street NE, Washington, DC 20549. The public may obtain information
about the operation of the public reference room by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet site
that contains reports, proxy and information statements, and other information regarding issuers that file electronically with
the SEC. The website of the SEC is www.sec.gov . Additional information about the Company and its public disclosures
is available on our website at www.cri.com.
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Corporate Organization
Our principal offices are located at 13100
Magisterial Drive, Ste 100, Louisville, Kentucky 40223, and our telephone number at that office is (502) 791-8800.
We originally incorporated and organized
as a Minnesota corporation under the name “Wireless Ronin Technologies, Inc.” in March 2003. Our business initially
focused on the provision of expertise in digital media marketing solutions to customers, including digital signage, interactive
kiosks, mobile, social media and web-based media solutions. We acquired the assets and business of Broadcast International, Inc.,
a Utah corporation and public registrant, through a merger transaction that was effective as of August 1, 2014. Then on August
20, 2014, we consummated a merger transaction with Creative Realities, LLC, a privately owned Delaware limited liability company,
in which we issued a majority of our issued and outstanding shares of common stock. In that merger transaction, we acquired the
interactive marketing technology business of Creative Realities that we currently operate. Shortly after that merger, we changed
our corporate name from “Wireless Ronin Technologies, Inc.” to “Creative Realities, Inc.” On October 15,
2015, we acquired the assets and business of ConeXus World Global, LLC, a privately-owned Kentucky limited liability company for
which we issued preferred and common stock. In that merger transaction, we acquired the systems integration and marketing technology
business of ConeXus World that we currently operate. On May 23, 2016, we dissolved Broadcast International, Inc. On November 20,
2018, we acquired Allure Global Solutions, Inc. (“Allure”), an enterprise software development company (as further
described below).
Business Strategy
We believe that our existing business model
is highly scalable and can be expanded successfully as we continue to grow organically and integrate our recent merger transactions,
acquire and integrate other companies which operate directly in our target markets, strengthen our operational practices and procedures,
further streamline our administrative office functions, and continue to capitalize on various marketing programs and activities.
Industry Background
We believe certain digital marketing technology
industry trends are creating the opportunity for retailers, brands, venue-operators, enterprises, non-profits and other organizations
to create innovative shopping, marketing, and informational experiences for their customers and other stakeholders in various venues
worldwide. These trends include: (i) the expectations of technology-savvy consumers; (ii) addressing on-line competitors by improving
physical experiences; (iii) accelerating decline in the cost of hardware configurations (primarily flat panel displays) and software
media players; (iv) the continued evolution of mobile, social, software and hardware technologies, applications and tools; (v)
increasing sophistication of social networking platforms; (vi) increasingly complex customer requirements related to their specific
digital marketing technology and solution objectives; and (vii) customers challenging service providers with the delivery of a
satisfactory consumer experience with the traditional pressure on reducing installation and ongoing operating costs.
As a result, a growing number of retailers,
brands, venue-operators and other organizations have identified the need and opportunity to implement increasingly cost-effective
and “sales-lifting” digital marketing, and interactive experiences to market to their customers. These experiences
include creating unique and customized experiences for targeted, timely offerings and relevant promotions; improving engagement
resulting in increased sales; and increasing shopping basket size. We believe our clients consider capitalizing on these industry
trends to be increasingly critical to any successful “store of the future” retail and brand sales environment, especially
where sales staff turnover is high, training outcomes are inconsistent and product knowledge is low.
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Companies are accomplishing their strategies
by implementing various digital marketing technology solutions, which: are implemented in multiple forms and types of configurations
and locations; attempt to achieve any of a broad range of individual or combination of objectives; contain various levels of targeting;
have the ability to instantly manage single or multiple locations remotely from a customer’s desktop or other connected device
at each location; and are built to deliver or contain a standard or customized experience unique to and within the customer’s
environment. Examples of such solutions include:
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Digital Merchandising Systems, which aim to inform and interact with customers through various types of content in an integrated experience, improve in-store customer experiences and increase overall sales, upsells, and/or cross-sales;
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Digital Sales Assistants, which aim to replace or augment existing sales resources and the level of interactive and informational sales assistance inside the store;
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Digital Way-Finders, which aim to help customers navigate their way around individual retail stores and multi-store locations or venues, or within individual brand categories;
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Digital Kiosks, which aim to provide data, specialized
and customized broadcasts, promotional information and coupons, train, and other forms of information and interaction with customers
in a variety of deployment forms, types, configurations and experiences;
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Digital Menu-Board Systems, which aim to enable various types of restaurant operators the ability to remotely and on a scheduled basis, update and modify menu information, promotions, and other forms of content dynamically;
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Dynamic Digital Signage which aims to deliver and manage in-store marketing and advertising campaigns, specialized and customized broadcasts, and various other forms of messaging targeting customers in a particular experience or environment.
Our Markets
We currently market and sell our marketing
technology solutions through our direct sales force, inside sales team, and word-of-mouth referrals from existing customers. Select
strategic partnerships and lead generation programs also drive business to the Company through targeted business development initiatives.
We market to companies that seek digital marketing solutions across multiple connected devices and who specifically seek or could
benefit from enhancements to the customer experience offered in their stores, venues, brands or organizations. In addition to our
direct sales force, we market our Safe Space Solutions suite of products through a network of distribution and reseller partners
through which we have expanded our market presence and reach. Distributors operate on either a consignment or direct drop ship
approach and no revenue is recognized until a sale is made and product is delivered.
Our digital marketing technology solutions
have application in a wide variety of industries. The industries in which we sell our solutions are established and include
automotive, apparel & accessories, banking, baby/children, beauty, CPG, department stores, digital out-of-home (“DOOH”),
electronics, fashion, fitness, foodservice/quick service restaurant (“QSR”), financial services, gaming, luxury, mass
merchants, mobile operators, and pharmacy retail; however, the planning, development, implementation and maintenance of technology-enabled
experiences involving combinations of digital marketing technologies is relatively new and evolving. Moreover, a number of
participants in these industries have only recently started considering or expanding the adoption of these types of technologies,
solutions and experiences as part of their overall marketing strategies.
Seasonality
A portion of our customer activity is influenced
by seasonal effects related to traditional end of calendar year peak retail sales periods, traditional spring stadium/venue opening
seasons, and certain other factors that arise from our target customer base. Nevertheless, our revenues can be materially affected
by the launch of new markets, the timing of production rollouts, and other factors, any of which have the ability to reduce or
outweigh certain seasonal effects.
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Effect of General Economic Conditions
on our Business
We believe that demand for our services
will increase in part because of new construction and remodeling activities of pre-existing retail, convenience store, stadium
and event venues. While we do see reductions in retail footprints across the U.S., we see a continued focus on integration of digital
into the retail marketplace and a focus on digital refreshes within the retail space to stay relevant in an evolving e-commerce
marketplace. Recent general economic improvements generally make it easier for our customers to justify decisions to invest in
digital marketing technology solutions. A change in the macroeconomic trend in the U.S. could have a negative impact on our customers’
ability and/or willingness to advance their digital initiatives.
Regulation
We are subject to regulation by various
federal and state governmental agencies. Such regulation includes radio frequency emission regulatory activities of the U.S. Federal
Communications Commission, the consumer protection laws of the U.S. Federal Trade Commission, product safety regulatory activities
of the U.S. Consumer Product Safety Commission, and environmental regulation in areas in which we conduct business. Some of the
hardware components that we supply to customers may contain hazardous or regulated substances, such as lead. A number of U.S. states
have adopted or are considering “takeback” bills addressing the disposal of electronic waste, including CRT style and
flat panel monitors and computers. Electronic waste legislation is developing. Some of the bills passed or under consideration
may impose on us, or on our customers or suppliers, requirements for disposal of systems we sell and the payment of additional
fees to pay costs of disposal and recycling. Presently, we do not believe that any such legislation or proposed legislation will
have a materially adverse impact on our business.
Our Thermal Mirror and other Safe Space
Solutions products are utilized by employers, in part, to evaluate the temperature of their respective employees or guests to their
facilities. Consequently, regulations from the U.S. Food and Drug Administration, as well as state regulations related to consumer
and employee privacy rights, may apply to the sale and use of such devices within the United States. Similarly, because the devices
are sold in Canada, regulations related to consumer and employee privacy in provinces where such regulations exist may apply to
the sale and use of such devices in those provinces in Canada. Presently, we do not believe that any such legislation or proposed
legislation will have a materially adverse impact on our business.
Competition
While we believe there is presently no direct
competitor with the comprehensive offering of technologies, solutions and services we provide to our customers, there are multiple
individual competitors who offer pieces of our solutions. These include digital signage software companies such as Stratacache,
Four Winds Interactive, and Reflect Systems; marketing services companies such as Sapient Nitro or digital signage systems integrators
such as SageNet. Some of these competitors may have significantly greater financial, technical and marketing resources than we
do and may be able to respond more rapidly than we can to new or emerging technologies or changes in customer requirements. We
believe that our sales and business development capabilities, network operations / field service management capabilities, our comprehensive
offering of digital marketing technology and solutions, brand awareness, and proprietary processes are the primary factors affecting
our competitive position.
Major Customers
We had two (2) and one (1) customer(s) that
accounted for 27.8% and 18.5% of revenue for the years ended December 31, 2020 and 2019, respectively.
Decisions by one or more of these key customers
to not renew, terminate or substantially reduce their use of our products, technology, services, and platform could substantially
slow our revenue growth and lead to a decline in revenue. Our business plan assumes continued growth in revenue, and it is unlikely
that we will become profitable without a continued increase in revenue.
For the years ended December 31, 2020 and
2019, we had sales of $1,058 (6.1% of consolidated sales) and $1,103 (3.5% of consolidated sales), respectively, with 33 Degrees
Convenience Connect, Inc., a related party that is approximately 17.5% owned by a member of our senior management (“33 Degrees”).
Territories
We sell products and services primarily
throughout North America.
Employees
We have approximately 75 employees as of
March 8, 2021. We do not have any employees that operate under collective-bargaining agreements.
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