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Item 1A. Risk Factors

2025-11-12 compared with 2025-08-13 · 75 added, 0 removed, 7 unchanged (91% of the section changed)

2 unchanged sentences

Such risks and uncertainties have the potential to affect our business, financial condition, results of operations, cash flow, strategies or prospects in a material and adverse manner.

In addition, set forth below are additional risk factors for which our investors should be aware:

We have issued shares of convertible preferred stock with terms that could dilute the voting power or reduce the value of our common stock.

On October 15, 2025, the Company entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with North Run Strategic Opportunities Fund I, LP (the “Lead Investor”) and NR-SOF I (Co-Invest I), LP (together with the Lead Investor, the “Buyers”), each an affiliate of North Run Capital, pursuant to which the Company agreed to sell to the Buyers in a private placement, for an aggregate gross purchase price of $30.0 million, an aggregate of 30,000 shares of a newly established series of preferred stock designated as Series A Convertible Preferred Stock (the “Preferred Shares”), which have a stated value of $1,000 per share (the “Stated Value”)(the “Offering”).

The Offering was completed on November 6, 2025.

The Preferred Stock accrue dividends on the Stated Value for a period of five years from and after the issuance date (the “Guaranteed Term”) at a rate of 5.25% per year.

Each Preferred Share is convertible at the option of the holder into shares of the Company’s common stock at a rate (the “Conversion Rate”) calculated by dividing (i) a liquidation preference equal to the Stated Value plus the amount of accrued and unpaid dividends, by (ii) a conversion price of $3.00 (subject to customary adjustments).

Conversion of the Preferred Shares are currently subject to ownership limitations that prevent converting the Preferred Shares if the holder, together with its affiliates, would be more than a 19.99% beneficial owner of our common stock following such conversion (the “Beneficial Ownership Limitation”) or if the aggregate number of common shares issued upon conversion of Preferred Shares would exceed 2,102,734 (the “Exchange Cap”).

Upon approval by the Company’s shareholders, the holders of Preferred Shares may elect to eliminate the Exchange Cap limitation and may elect, upon 61 days’ written notice, to increase the maximum Beneficial Ownership limitation to 49.99%.

Holders of Preferred Shares are entitled to vote on an as-converted basis with holders of the Company’s common stock (after taking into the account the applicable conversion limitations).

Based on the Conversion Rate and without regarding the conversion limitations, the Preferred Shares held by the Buyers were initially convertible into common stock representing 48.7% of our issued and outstanding common stock after giving effect to such conversion.

The Preferred Shares rank senior to the Company’s common stock as to distributions and payments upon the liquidation, dissolution and winding up of the Company, and holders of Preferred Shares will participate with the holders of the common stock on an as-converted basis to the extent any dividends are declared on common stock.

Holders of Preferred Shares are also entitled to redemption rights under certain circumstances.

The redemption rights and liquidation preferences assigned to holders of the Preferred Shares could affect the residual value of the common stock.

We have issued shares of convertible preferred stock with terms that could dilute the voting power or reduce the value of our common stock

For as long as North Run and its affiliates hold a significant amount of Preferred Shares and/or our common stock, they will be able to strongly influence or effectively exercise control over us.

This concentrated control may limit or preclude other shareholders’ ability to influence corporate matters for the foreseeable future, including the election of directors, amendments of our organizational documents, and any merger, consolidation, sale of all or substantially all of our assets, or other major corporate transaction requiring shareholder approval.

In addition to the significant voting control of North Run and its affiliates, for so long as the North Run and its affiliates beneficially own at least 20% of the common stock underlying the Preferred Shares, the Company may not take any of various actions without North Run’s consent, including creating, authorizing, or issuing capital stock that ranks senior to or pari passu with the Preferred Shares, or increasing the authorized number of Preferred Shares;

incurring debt that would result in the ratio of debt to EBITDA of the Company for preceding twelve calendar months exceeding 2.5:1;

purchasing or redeeming, or paying or declaring any dividend on shares of capital stock other than redemptions of or dividends on the Preferred Shares;

completing an acquisition with consideration above $5.0 million;

entering into, renewing, extending or being a party to certain related party transactions;

or amending, altering or repealing any provision of the Company’s articles of incorporation or bylaws in a manner that adversely affects the rights, powers and preferences of the Preferred Shares.

North Run’s concentrated ownership may also prevent or discourage unsolicited acquisition proposals or offers for our capital stock that shareholders may believe are in their best interest.

North Run’s interests may not align with the interests of our other shareholders.

North Run and its affiliates may also determine to sell substantial amounts of our securities in one or more transactions, including to one or several private parties in negotiated transactions.

In that case, those buyers may subsequently be able to exert significant control over us.

Adequate funds for our operations may not be available, requiring us to raise additional financing or else curtail our activities significantly.

On November 6, 2025, the Company refinanced its credit facilities pursuant to the New Credit Agreement, which include a $36,000 term loan and a $22,500 revolving credit facility, and consummated the Offering by selling 30,000 shares of Preferred Stock for $30,000 (each as further described in this Quarterly Report).

The net proceeds from these activities were used in part to pay the purchase price payable under the Share Purchase Agreement to acquire the CDM Business.

Additionally, we have outstanding a $4,000 Promissory Note.

If we are unable to maintain our debt service obligations, or our we require additional funds for other purposes, we would be required to raise additional funding through public or private financings, including debt or equity financings.

Generally, the New Credit Agreement prohibits the Company and its subsidiaries from granting any security interests in any assets of their assets, or from issuing additional debt without the approval of the lenders under the New Credit Agreement.

The terms of the documents executed in connection with the Offering also provide certain limitations on our ability to effectuate any debt or equity financing, as described in the foregoing risk factor.

Any equity financing will dilute the percentages of ownership interest of then-current holders of our capital stock and may dilute our book value per share.

Any additional equity financings may also be dilutive to shareholders and may be completed at a discount to the then-current market price of our securities.

Any new debt financing, if available, may involve restrictive covenants on our operations or pertaining to future financing arrangements.

Nevertheless, we may not successfully complete any future equity or debt financing even if desired.

Adequate funds for our operations, whether from financial markets, collaborative or other arrangements, may not be available when needed or on terms attractive to us.

If adequate funds are not available, our plans to operate our business may be adversely affected and we could be required to curtail our activities significantly and/or cease operating.

We may not realize the growth opportunities that are anticipated from our acquisition of the CDM Business.

The benefits we expect to achieve as a result of the acquisition of the CDM Business will depend, in part, on our ability to realize anticipated growth opportunities.

Our success in realizing these growth opportunities, and the timing of this realization, depends largely on the successful integration of the business and operations of the CDM Business with our business and operations.

Even if we are able to integrate our business with the CDM Business successfully, this integration may not result in the realization of the full benefits of the growth opportunities we currently expect from this integration within the anticipated time frame or at all.

While we anticipate that certain expenses will be incurred, such expenses are difficult to estimate accurately, and may exceed current estimates, and cost saving projections may not be realized fully or at all.

Accordingly, the benefits from the acquisition may be offset by costs incurred or delays in integrating the companies, which could cause our revenue assumptions to be inaccurate.

The acquisition of the CDM Business may fail to achieve beneficial synergies.

We consummated the acquisition of the CDM Business with the expectation that the acquisition will result in beneficial synergies, such as cost reductions and improving the stability of the combined company’s revenues.

Achieving these anticipated synergies and benefits will depend largely on our success in integrating the CDM Business with our business.

Potential risks from an unsuccessful integration include:

The potential disruption of the combined company’s ongoing business and distraction of management;

the customers of Creative Realities or the CDM Business may defer purchasing decisions due to disagreements with the combined company on its strategic direction and product initiatives;

the customers of the CDM Business abandon or reject products and services offered by the combined company after the acquisition, including products and services of the CDM Business that are integrated into Creative Realities’ business, such as additional software products, hosting applications or installation services;

it may be more difficult to retain key management, marketing, and technical personnel after the acquisition;

costs and expenditures for retaining personnel, eliminating unnecessary resources and integrating the businesses are greater than anticipated;

the combined company cannot increase sales of its products and services;

integrating the business will impair the legacy relationships that we and the CDM Business have developed with our respective customers and business partners;

anticipating the market needs and achieving market acceptance of our products and services;

bringing together the companies’ marketing efforts so that the industry receives useful information about the acquisition and customers perceive value in the combined company’s products and services;

developing and maintaining uniform standards, controls, procedures and policies.

Even if the two companies are able to effectively integrate operations, there can be no assurance that the anticipated synergies will be achieved.

The failure to achieve such synergies could adversely affect the business, results of operations and financial condition of the combined company.

The assumption of unknown liabilities in the acquisition of the CDM Business may harm our financial condition and results of operations.

Because we acquired all of the issued and outstanding shares of DDC Group International, Inc.

(“DDC”), the parent company of the CDM Business, the CDM Business remains subject to all of its liabilities, including contingent and unknown liabilities.

Although the share purchase agreement includes representations and warranties and indemnity covenants from the seller of the DDC shares that may offer us some contractual remedies for breaches or certain other undisclosed or unknown liabilities, there are limitations and conditions to our ability to recoup any liabilities, and there may be other unknown obligations for which we have no contractual remedy.

In such a case, our business could be materially and adversely affected.

We may learn additional information about the CDM Business that adversely affects us, such as the existence of unknown liabilities, or issues that could affect our ability to comply with applicable laws.

If these liabilities are greater than expected, or if there are material obligations for which we do not have adequate recourse against the seller, our business may be materially and adversely affected.

If we become responsible for substantial uninsured liabilities, such liabilities may have a material adverse effect on our financial condition and results of operations.

We have incurred and will continue to incur significant transaction and integration costs in connection with our acquisition of the CDM Business.

We have incurred significant costs associated with completing the acquisition of the CDM Business, and expect to incur additional significant costs integrating the operations of the two companies.

The substantial majority of these costs will be non-recurring expenses and will consist of transaction costs (e.g., legal, accounting), facilities and systems consolidation costs and employment-related costs.

Additional unanticipated costs may be incurred in the integration of our businesses.

Although we expect that the elimination of duplicative costs, as well as the realization of other efficiencies related to the integration of the businesses, may offset incremental transaction and acquisition costs over time, this net benefit may not be achieved in the near term, or at all.

Unregistered Sales of Equity Securities and Use of Proceeds

3 unchanged sentences

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What changed 10-Q

Item 1A. Risk Factors