What changed in this filing

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Item 5. Market for Registrant’s Common Equity

2025-03-31 compared with 2024-03-25 · 119 added, 121 removed, 257 unchanged (48% of the section changed)

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Recent Sales of Unregistered Securities

STS Acquisition

As previously disclosed under Item 3.02 in the Company’s Current Report on Form 8-K filed with the SEC on June 17, 2022, as part of the purchase price the Company issued to the sellers of STS 798,666 unregistered shares of the Company’s common stock, valued at $2,000,000.

The stock consideration paid to the sellers was issued pursuant to an exemption under Section 4(a)(2) of the Securities Act of 1933, as amended, and/or Regulation D, as promulgated thereunder.

Senior Notes with Warrants

As previously disclosed under Item 3.02 in the Company’s Current Report on Form 8-K filed with the SEC on January 18, 2023, the Company entered into a securities purchase agreement with certain accredited investors, pursuant to which the Company agreed to issue and sell to the investors in a private placement transaction (i) up to $15,000,000 in aggregate principal amount of senior secured promissory notes, and (ii) warrants to purchase up to an aggregate of 7,500,000 shares of common stock of the Company.

2023 Promissory Notes with Warrants

As previously disclosed under Item 3.02 in the Company’s Current Report on Form 8-K filed with the SEC on January 18, 2023, the Company entered into a securities purchase agreement with certain accredited investors, pursuant to which the Company agreed to issue and sell to the investors in a private placement transaction (i) up to $15,000,000 in aggregate principal amount of senior secured promissory notes (the "2023 Promissory Notes"), and (ii) warrants to purchase up to an aggregate of 7,500,000 shares of common stock of the Company.

In connection with the initial closing on January 18, 2023, the Company issued $12,500,000 in aggregate principal amount of notes and warrants to purchase 6,250,000 shares of Common Stock, resulting in proceeds to the Company of $12,500,000 before reimbursement of expenses.

New Registered Direct Warrants

On July 25, 2023, we entered into a letter agreement with an institutional investor in connection with the Registered Direct Warrants.

Pursuant to the letter agreement, we agreed to issue to the institutional investor 2,850,000 unregistered warrants (the "2023 Private Warrants") to purchase shares of our common stock in exchange for the imposition of volume and trading restrictions on the 6,872,853 shares of common stock issued to the institutional investor in connection with exercise of the 2023 Private Warrants.

The 2023 Private Warrants terminate on January 25, 2029, and are exercisable after issuance only for cash.

The 2023 Private Warrants have an exercise price of $3.25 per share.

The shares of common stock underlying the 2023 Private Warrants have been registered for resale on Form S-3.

ATD Acquisition

As previously disclosed under Item 3.02 in the Company’s Current Report on Form 8-K filed with the SEC on January 3, 2024, as part of the purchase price the Company issued to the sellers of ATD 3,496,464 unregistered shares of the Company’s common stock, valued at $10,000,000.

The stock consideration paid to the sellers was issued pursuant to an exemption under Section 4(a)(2) of the Securities Act of 1933, as amended, and/or Regulation D, as promulgated thereunder.

On February 27, 2024, the Company filed a registration statement on Form S-3 to register these shares.

As previously disclosed under Item 3.02 in the Company’s Current Report on Form 8-K filed with the SEC on January 3, 2024, as part of the purchase price for the ATD acquisition the Company issued 2,832,135 shares of the Company’s common stock as part of the consideration.

Additionally, 664,329 shares were be issued and delivered to the Seller on the twelve-month anniversary of the Closing Date.

The ATD Holdback Shares were deemed to be liability based and are measured at fair value each reporting period.

The shares issued and issuable in connection with the ATD Acquisition have been registered on a resale registration statement on Form S-3, declared effective by the SEC on June 17, 2024.

2023 Promissory Notes Redemption

On March 4, 2024, the Company completed the redemption of all its outstanding senior secured notes (the “2023 Promissory Notes”).

The 2023 Promissory Notes were redeemed at the redemption price of 115% of the $12,500,000 aggregate principal amount of the 2023 Promissory Notes, or approximately $14,375,000, plus accrued and unpaid interest to the redemption date of approximately $263,000 (the “Redemption Payment”).

The noteholders elected to accept $1,875,000 of the Redemption Payment in the form of 750,000 unregistered shares of the Company’s common stock, par value $0.0001 per share, having a value of $2.50 per share, with the remainder of the Redemption Payment to be paid in cash.

Use of Proceeds

We have generated losses since our inception and have relied on cash on hand, external bank lines of credit, short-term borrowing arrangements, issuance of debt, the sale of a note, sale of our non-core subsidiaries, and the sale of common stock to provide cash for operations.

We attribute losses to financing costs, public company corporate overhead, lower than expected revenue, and lower gross profit of some of our subsidiaries.

Our cash proceeds have been primarily used for the acquisitions described above, research and development, legal, financing costs, acquisition costs and sales and marketing expenses related to new product development and our strategic shift to develop and promote the capabilities of our technology offerings.

On March 4, 2024, the Company completed the redemption of all the 2023 Promissory Notes.

The 2023 Promissory Notes at the redemption price of 115% of the $12,500,000 aggregate principal amount of the 2023 Promissory Notes, or approximately $14,375,000, plus accrued and unpaid interest to the redemption date of approximately $263,000, (the “Redemption Payment”).

On July 19, 2024, the Company filed a registration statement on Form S-3 to register these shares, which was declared effective by the SEC on July 30, 2024.

Warrant Exercise Agreements

On June 20, 2024, the Company entered into various Warrant Exercise Agreements with certain holders of the 2023 Warrants (each an “Exercising Holder” and collectively, the “Exercising Holders”), pursuant to which the Company reduced the strike price of the 2023 Warrants from $2.00 per warrant to $1.40 per warrant to induce their exercise.

In June 2024, all but one of the Exercising Holders subsequently exercised 1,400,000 warrants for common stock in exchange for $1,960,000.

In July 2024, the remaining Exercising Holder exercised 2,275,000 warrants for common stock in exchange for $3,185,000.

In consideration for the Company’s agreement to reduce the exercise price, the Exercising Holders agreed to a concomitant reduction in the number of shares into which the 2023 Warrants are exercisable, from 5,250,000 to 3,675,000.

This modification resulted in a decrease in the overall fair value of the equity classified warrants and since no incremental value was given to the Exercising Holders, nothing was recorded in the consolidated financial statements related to the modification.

The shares issued in connection with the Warrant Exercise Agreement have been registered on a resale registration statement on Form S-3 filed with the SEC on July 19, 2024, and declared effective by the SEC on July 30, 2024.

MANAGEMENT ’ S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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The information provided in this discussion and analysis of Rekor’s financial condition, and results of operations covers the years ended December 31, 2024 and 2023.

In 2022, we divested our Automated Traffic Safety Enforcement ("ATSE") business, a non-core business unit.

As a result of the divestiture, we determined that ATSE met the criteria to be considered discontinued and it was no longer presented with continuing operations.

Additionally, in 2022, we completed the acquisition of 100% of the issued and outstanding capital stock of Southern Traffic Services, Inc.

This acquisition is included in the presentation of our continuing operations.

In 2024, we completed the acquisition of 100% of the issued and outstanding limited liability company interests of All Traffic Data Systems (“ATD”).

Acquisitions and Dispositions

On June 17, 2022 , we completed the acquisition of STS by acquiring 100% of the issued and outstanding capital stock of STS.

The acquisition included total consideration of $12,799,000 including:

cash consideration of $6,500,000, $1,001,000 related to an earnout based on the achievement of certain performance metrics ("STS Earnout") and $1,298,000 contingent on the closing of a future contract ("STS Contingent Consideration"), 798,666 shares of the Company’s common stock, valued at $2,000,000, and a $2,000,000 note.

On December 6, 2022, we divested our ATSE business, a non-core business unit, for approximate ly $3,390,000.

On January 2, 2024, we completed the acquisition of All Traffic Data Services, LLC (“ATD”) for an aggregate purchase price of $19,795,000, consisting of $9,795,000 in cash which included closing adjustments and $10,000,000 of stock consideration.

On January 2, 2024, we completed the acquisition of All Traffic Data Services, LLC (“ATD”) for an aggregate purchase price of $20,576,000.

See Note 2 to our consolidated financial statements for additional information related to our acquisition of ATD.

Opportunities, Trends and Uncertainties

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As a result, we have made significant investments in our business development, marketing and eCommerce activities to increase awareness and market adoption of our products and services within key markets.

We anticipate that a sustained presence in the market, the continued development of strategic partnerships and other economies of scale will reduce the level of costs necessary to support sales of our products and services.

If we are able to maintain a sustained presence in the market, the continued development of strategic partnerships and other economies of scale will reduce the level of costs necessary to support sales of our products and services.

However, the speed at which these markets grow to the degree to which our products and services are adopted is uncertain.

Infrastructure Investment and Jobs Act ( “ IIJA ” ) and the Bipartisan Infrastructure Law ( “ BIL ” ) - The IIJA, signed into law on November 15, 2021, provides for significant national investments in the transportation systems in the United States, including over $150 billion in new spending on roadway infrastructure, including intelligent transportation systems.

We believe that our comprehensive offering of solutions positions the Company well to emerge as a technology leader in the expanded market for roadway intelligence that will benefit from this legislation.

We believe that there will continue to be bi-partisan support for these programs and that our comprehensive offering of solutions positions the Company well to emerge as a technology leader in the expanded market for roadway intelligence that will benefit from this legislation.

We have identified opportunities to access federal funding streams, and we are working to implement a program that capitalizes on this unprecedented U.S.

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$150 million for the current administration to establish a grant program to modernize state data collection systems $500 million for the Strengthening Mobility and Revolutionizing Transportation (“SMART”) Grant Program that would support demonstration projects on smart technologies that improve transportation efficiency and safety.

Recent Acquisitions - Over the past two years, Rekor has acquired two subsidiaries as part of its plans to advance its appeal to national and local transportation agencies.

In the first of these acquisitions, we acquired a leader in the development of predictive analytics for traffic management using a combination of internally generated and third party data sources.

This acquisition was designed to assure transportation agencies that we were developing the most advanced data analysis systems to support their missions in safety and efficiency.

In the second acquisition, we acquired one of the leading existing providers of traffic data services in the United States.

Uniquely, this Company had innovated a change in the service model from providing, servicing and maintaining agency resources to a data services model where overlapping entities could benefit from our modular approach to data collection and dissemination.

Each of these acquisitions has led to increased visibility for the Company among national and state level DOTs in the United States and Israel.

Recent Acquisition - In the current year, Rekor has acquired one subsidiary as part of its plans to advance its appeal to national and local transportation agencies.

We acquired one of the leading existing providers of traffic data services in the United States.

This acquisition has led to increased visibility for the Company among national and state level DOTs in the United States.

Challenges to Executing on the Corporate Strategy – As an acquirer and integrator of established technology companies in the ITS industry, there is an inherent risk associated with the successful implementation and execution of the strategy.

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Depreciation and Amortization

Depreciation and amortization expenses are primarily attributable to our capital investments and consist of fixed asset depreciation, amortization of intangibles considered to have definite lives, and amortization of capitalized internal-use software costs.

Depreciation and amortization expenses are primarily attributable to our capital investments and consist of fixed asset depreciation, amortization of intangibles considered to have finite lives, and amortization of capitalized internal-use software costs.

Other Income (Expense)

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We have recorded deferred tax assets for which a full valuation allowance has been provided, including net operating loss carryforwards and tax credits.

We expect to maintain this full valuation allowance for the foreseeable future as it is more likely than not that some or all of those deferred tax assets may not be realized based on our history of losses.

We expect to maintain this full valuation allowance for the foreseeable future as it is more likely than not that those deferred tax assets may not be realized based on our history of losses.

Results of Operations

Our historical operating results in dollars are presented below.

The analysis of operations is solely related to continuing operations and does not consider the results of discontinued operations.

The following selected consolidated financial data should be read in conjunction with the foregoing information contained in this Item 7 and with the consolidated financial statements and the notes thereto in Item 8 of Part II, “Financial Statements and Supplementary Data.” Only historical operating results are presented below.

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Research and development expenses

Impairment of intangible assets

Depreciation and amortization

Goodwill impairment

Total operating expenses

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Other income (expense):

Gain on extinguishment of debt

Gain on the sale of business

(Loss) gain on extinguishment of debt

Interest expense, net

Gain on remeasurement of ATD Holdback Shares

Loss on offering costs - Prepaid Advance

Loss on settlement of Prepaid Advance

Gain on the sale of Global Public Safety

Other expense, net

Total other income (expense)

Total other expense, net

Loss before income taxes

(Provision) benefit for income taxes

Net loss from continuing operations

Provision for income taxes

Comparison of the Years Ended December 31, 2024 and 2023

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The increase in revenue for the year ended December 31, 2024, compared to the year ended December 31, 2023, was primarily attributable to our Urban Mobility product line.

During the year ended December 31, 2023, revenue attributable to our Urban Mobility product line was $16,773,000, compared to $7,692,000 compared for the year ended December 31, 2022.

Additionally, our contactless compliance revenue increased $1,110,000 for the year ended December 31, 2023 compared to the year ended December 31, 2022.

The remaining increase in revenue growth during the year ended December 31, 2023, compared to the year ended December 31, 2022 was primarily attributable to increased sales in sales of the Company's software and hardware products.

During the year ended December 31, 2024, revenue attributable to our Urban Mobility product line was $28,688,000 compared to $16,773,000 for the year ended December 31, 2023.

During the year ended December 31, 2024, revenue attributable to our ATD acquisition was $10,125,000 and is included as part of our Urban Mobility revenue stream.

Cost of Revenue, Excluding Depreciation and Amortization

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Cost of revenue, excluding depreciation and amortization

For the year ended December 31, 2023, cost of revenue, excluding depreciation and amortization increased compared to the corresponding prior periods primarily due to an increase in personnel and other direct costs such as hardware that were incurred to support our increase in revenue.

The costs of revenue increased at a lower rate than our revenue increased as the Company was able to realize efficiencies in its operations and better manage its software costs.

For the year ended December 31, 2024, cost of revenue, excluding depreciation and amortization increased compared to prior year primarily due to an increase in personnel and other direct costs such as hardware that were incurred to support our increase in revenue.

The costs of revenue increased at a higher rate than our revenue increased as our mix of revenue shifted to more labor intensive activities.

As we continue to deploy our technology, we anticipate our margins to improve.

Additionally, during the year ended December 31, 2024, $3,672,000 of the increase was related to our acquisition of ATD.

Operating Expenses

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Research and development expenses

Impairment of intangible assets

Depreciation and amortization

Goodwill impairment

Total operating expenses

General and Administrative Expenses

The increase in general and administrative expenses during the year ended December 31, 2023, compared to the year ended December 31, 2022, were primarily due to increases related to our automobile fleet and insurance.

These costs were partially offset due to a decrease in our personnel costs related to a reduction of salaries and overall payroll during the year.

Additionally, for the year ended December 31, 2022, the Company recognized a $1,001,000 gain related to the remeasurement of the STS Earnout which decreased the Company's general and administrative expenses during the period.

For the year ended December 31, 2024, the increase in general and administrative expenses compared to the year ended December 31, 2023, was primarily due to:

a $2,150,000 increase in payroll and payroll related expenses which includes $1,294,000 related to our operations of ATD.

a $661,000 and $323,000 increase in rent and utility expense, respectively, which are primarily related to the additional leases as part of the ATD acquisition.

a $269,000 increase in insurance expense which is primarily related to higher premiums and the addition of the ATD operations.

a $236,000 increase in board fees, excluding share-based compensation due to the additional board members in 2024.

Selling and Marketing Expenses

The decrease in selling and marketing expenses during the year ended December 31, 2023, compared to the year ended December 31, 2022, was primarily due to a $965,000 decrease in stock-based compensation expenses.

The increase in selling and marketing expenses during the year ended December 31, 2024, compared to the year ended December 31, 2023, was primarily due to a $610,000 increase as result of the acquisition of ATD.

Research and Development Expense

The decrease in research and development expenses during the year ended December 31, 2023, compared to the year ended December 31, 2022, was primarily attributable to a decrease in subcontractor labor expenses as the Company utilized its current workforce to focus on the development of new products and software.

Research and development expenses during the year ended December 31, 2024, compared to the year ended December 31, 2023, remained consistent.

Impairment of Intangible Assets

As a result of sales performance being below expectation in part due to slower customer adoption, longer sales cycles and market conditions, the Company identified a triggering event and performed an analysis of its intangible assets.

As a result of the forementioned factors and their potential future impact, the Company recognized an impairment charge of $10,214,000 as of December 31, 2024.

Depreciation and Amortization

The increase in depreciation and amortization during the period is attributable primarily to the increased technology-based intangible assets that were acquired as part of our acquisition of STS.

Goodwill Impairment

During the third quarter of 2022, we experienced a significant decline in our market capitalization, which management deemed a triggering event related to goodwill.

As a result, we performed an interim impairment assessment as of September 30, 2022 and determined that as of the reporting date we had an impairment related to goodwill in the amount of $34,835,000.

The increase in depreciation and amortization during the year is attributable primarily to the intangible assets that were acquired as part of our acquisition of ATD.

Other Income (Expense)

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Other income (expense):

Gain on extinguishment of debt

Gain on the sale of business

(Loss) gain on extinguishment of debt

Interest expense, net

Gain on remeasurement of ATD Holdback Shares

Loss on offering costs - Prepaid Advance

Loss on settlement of Prepaid Advance

Gain on the sale of Global Public Safety

Other expense, net

Total other income (expense)

Interest expense increased period over period due to the issuance of the 2023 Promissory Notes.

Other expense, net increased in the current period compared to the prior period as a result of legal judgements and settlements that happened during the year ended December 31, 2022.

For additional details regarding our legal settlements please s ee Item 3 of Part I, “Legal Proceedings”.

In connection with the sale of ATSE, we recognized a gain on the sale of the business of $2,643,000 during the year ended December 31, 2022.

Gain on extinguishment of debt is a result of the settlement agreement in the Firestorm litigation.

As part of the settlement, we recorded a reduction to notes payable, the related accrued interest and other assets and liabilities which were part of the Firestorm entities.

Income Tax Provision (Benefit)

The provision for income taxes for the year ended December 31, 2023 , was $32,000 , a s compared to tax benefit of $987,000 for the year ended December 31, 2022 , which is due primarily to the step-up in the basis of intangible assets related to the STS acquisition.

We established a valuation allowance against deferred tax assets in the fourth quarter of 2017 and have continued to maintain a full valuation allowance through the year ended December 31, 2023 .

Total other expense, net

Loss on extinguishment of debt was a result of early redemption of the 2023 Promissory Notes.

As part of the redemption, we recorded accelerated debt issuance costs of $2,818,000 and a Redemption Payment of $1,875,000 which we settled through the issuance of common stock.

Interest expense decreased period over period due to the early redemption of the 2023 Promissory Notes.

In connection with the sale of Global Public Safety , we recognized a gain on the sale of the business of $1,500,000 during the year ended December 31, 2024.

On August 14, 2024, we entered into a Prepaid Advance Agreement under which funds were advanced to the Company and the lender had the ability to satisfy the advance in exchange for shares in the Company.

We incurred issuance costs and original issuance discounts totaling approximately $888,000 associated with the issuance of the Prepaid Advance.

Additionally, during the year the Company elected to terminate the Prepaid Advance Agreement.

All amounts due were settled and we recorded $900,000 in charges related to the settlement of the Prepaid Advance liability.

Non-GAAP Measures

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Year ended December 31,

Net loss from continuing operations

Provision (benefit) for income taxes

Provision for income taxes

Interest expense, net

Depreciation and amortization

Gain on extinguishment of debt

Share-based compensation

Gain on the sale of ATSE

Loss (gain) due to the remeasurement of the STS Earnout and Contingent Consideration, net

Loss (gain) on extinguishment of debt

Impairment of intangible assets

Loss on offering costs - Prepaid Advance

Loss on settlement of Prepaid Advance

Gain on the sale of Global Public Safety

Loss due to the remeasurement of the STS Earnout and Contingent Consideration, net

Impairment of SAFE agreement

Goodwill impairment

Legal judgements and settlements

One-time consulting fees

Adjusted EBITDA

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Adjusted Gross Margin

Adjusted Gross Margin, for the year ended December 31, 2023 increased to 52.8% from 45.3% for the year ended December 31, 2022 .

As the Company continues to scale and standardize its product offerings it has begun to realize operational efficiencies that have resulted in an improved Adjusted Gross Margin.

Additionally, the Company has worked diligently to reduce its software and data costs.

Adjusted Gross Margin for the year ended December 31, 2024 decreased from 52.8% to 49.3% compared to the year ended December 31, 2023 .

The fluctuation in Adjusted Gross Margin is typically correlated to the mix of software sales versus service type work.

Typically our software sales carry a higher Adjusted Gross Margin.

Key Performance Indicators

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Recurring revenue

As we continue to focus on long-term contracts with recurring revenue as part of our business model, we expect recurring revenue growth in future periods to continue to increase as we move to market our suite of products through our Rekor One™ platform.

We expect to continue efforts to secure long-term contracts with recurring revenue as part of our business model, which is intended to cause recurring revenue growth in future periods to continue to increase.

However, procurement requirements for some of our largest customers may result in periods when there is an increase one-time sales as compared to recurring revenues, which may cause the proportion of recurring revenues generated in those periods to fluctuate.

Total Contract Value

The total contract value of contracts won in the current period also provides us with visibility into our future operating results and cash flows from operations.

Total contract value is a non-GAAP measure in which there are certain assumptions that we make when determining the total contract value of an agreement, such as the success rate of renewal periods, cancellations and usage estimates.

For the year ended December 31, 2023, we won contracts valued at $49,087,000 , compared to $21,962,000 of contracts won for the year ended December 31, 2022.

This represents growth of $27,125,000 or 124% , period over period.

In addition, there may be an increase in one time sales as a result of initial installations related to the development of recurring revenue.

Performance Obligations

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As of December 31, 2024, we had appro ximately $14,450,000 of performance obligations with respect to contracts that were closed prior to December 31, 2024 but have a contractual period beyond December 31, 2024 .

This represents growth of $4,978,000 or 23% compared to $21,412,000 of performance obligations as of December 31, 2022.

These contracts generally cover a term of one to five years, during which the Company will recognize revenue ratably over the contract term.

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Net cash used in operating activities - continuing operations

Net cash provided by (used in) investing activities - continuing operations

Net cash provided by financing activities - continuing operations

Net increase (decrease) in cash, cash equivalents and restricted cash and cash equivalents - continuing operations

Net cash used in operating activities for the year ended December 31, 2023, had a net decrease of $7,892,000, which was attributable to the improvement of our Adjusted EBITDA of $8,754,000 which saw a 23% improvement period over period.

The net increase in net cash used in investing activities of $8,534,000 was primarily due to a decrease in the outflow of funds related to merger and acquisition activities and capital expenditures.

During the year ended December 31, 2023, the Company had net cash outflows of $1,388,000 related to capital expenditures compared to $4,171,000 for the year ended December 31, 2022.

Additionally, during the year ended December 31, 2022, the Company had net cash outflows of $6,389,000 related to the acquisition of STS.

This outflow was partially offset by $3,051,000 in cash proceeds from the sale of the Company's ATSE business unit.

Net cash provided by financing activities for the year ended December 31, 2023 increased by $21,734,000 from the prior year ended December 31, 2022.

Net cash (used in) provided by investing activities

Net cash provided by financing activities

Net (decrease) increase in cash, cash equivalents and restricted cash and cash equivalents - continuing operations

Net cash used in operating activities for the year ended December 31, 2024, increased by $291,000, which was primarily attributable to an increased loss which was offset by non-cash adjustments during the year, primarily the loss on extinguishment of debt of $4,693,000.

The increase in net cash used in investing activities was primarily due to the net cash outflow of $9,222,000 related to the acquisition of ATD.

Net cash provided by financing activities for the year ended December 31, 2024 decreased by $14,147,000 from the year ended December 31, 2023.

During the year ended December 31, 2024, as part of our 2024 Public Offering and Prepaid Advance, we received net proceeds of $26,362,000 and $14,100,000, respectively, these proceeds were partially offset by the repayment of our 2023 Promissory Notes.

During the year ended December 31, 2023, as part of our 2023 Promissory Notes and the 2023 Registered Direct Offering, we received net proceeds of $11,100,000 and $9,159,000, respectively.

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Lastly, in the fourth quarter of 2023, we raised $14,330,000 related to our Series A Prime Revenue Sharing Notes.

In the prior comparable period, through our 2022 Sales Agreement, we received net proceeds, after deducting the underwriting discounts and commissions and offering expenses payable by us, of $22,754,000.

For the years ended December 31, 2023 and 2022 , we funded our operations primarily through cash from the sale of equity, operating activities from our subsidiaries and the issuance of debt.

As of December 31, 2023 , we had unrestricted cash and cash equivalents from continuing operations of $15,385,000 and working capital of $8,100,000, as compared to unrestricted cash and cash equivalents of $1,924,000 and a working capital deficit of $6,010,000 as of December 31, 2022 .

For the years ended December 31, 2024 and 2023 , we funded our operations primarily through cash from operating activities, the issuance of debt and the sale of equity.

As of December 31, 2024 , we had unrestricted cash and cash equivalents of $5,329,000 and working capital of $1,707,000, as compared to unrestricted cash and cash equivalents of $15,713,000 and working capital of $8,100,000 as of December 31, 2023 .

Liquidity and Going Concern

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The Company attributes losses to non-capital expenditures related to the scaling of existing products and services, development of new products and services and marketing efforts associated with these existing and new products and services.

As of and for the year ended December 31, 2023, the Company had working capital from continuing operations of

$8,100,000 and a loss from continuing operations of

Our cash increased by $13,245,000 for the year ended December 31, 2023 primarily due to net cash provided by financing activities of

$45,602,000 which was offset by the net cash used in operating activities of

As of and for the year ended

December 31, 2024, the Company had working capital of

$1,707,000 and a net loss of

Based on the Company's current business plan assumptions and the expected cash burn rate, the Company believes that the existing cash is insufficient to fund its current level of operations for the next twelve months following the issuance of these consolidated financial statements.

These factors raise substantial doubt regarding the Company’s ability to continue as a going concern.

On February 10, 2025, the Company entered into an At Market Issuance Sales Agreement (the “Sales Agreement”) with Northland Securities, Inc., pursuant to which the Company may, from time to time, offer and sell shares of the Company’s common stock, par value $0.0001 per share, having an aggregate offering price of up to $25,000,000.

See Note 16 to our consolidated financial statements for additional information related to the Sales Agreement.

The Company's ability to generate positive operating results and execute its business strategy will depend on (i) its ability to continue the growth of its customer base, (ii) its ability to continue to improve its quarterly financial metrics such as net loss and cash used from operating activities (iii) the continued performance of its contractors, subcontractors and vendors, (iv) its ability to maintain and build good relationships with investors, lenders and other financial intermediaries, (v) its ability to maintain timely collections from existing customers, and (vi) the ability to scale its business processes.

To the extent that events outside of the Company's control have a significant negative impact on economic and/or market conditions, they could affect payments from customers, services and supplies from vendors, its ability to continue to secure and implement new business, raise capital, and otherwise, depending on the severity of such impact, materially adversely affect its operating results.

Balance Sheet Arrangements, Contractual Obligations and Commitments

Off-Balance Sheet Arrangements, Contractual Obligations and Commitments

As of the date of this Annual Report on Form 10-K, we did not have any off-balance sheet arrangements that have had or are reasonably likely to have a material effect on our financial condition, revenues or expenses, results of operations, liquidity, capital resources or capital expenditures.

We have certain contractual obligations for future payments.

See Note 7 to our consolidated financial statements for our required operating and financing lease payments and Note 9 for our required debt payments.

Critical Accounting Estimates

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Actual results may differ from these estimates under different assumptions or conditions, or if management made different judgments or utilized different estimates.

Revenue Recognition

Judgment is required for the estimation of the standalone selling price (“SSP”) and the allocation of the transaction price by relative SSPs.

We have arrangements that include multiple performance obligations in which we need to allocate the transaction price using the SSP.

Our customer arrangements containing multiple performance obligations typically include the sale and installation of cameras systems, licensing of our software and the performance of maintenance services over a contractual term.

In most instances, we have determined these performance obligations qualify as distinct performance obligations, as the customer can benefit from the service on its own or together with other resources that are readily available to the customer, and our promise to transfer the service is separately identifiable from other promises in the contract.

For arrangements that contain multiple performance obligations, we exercise judgment in allocating the transaction price based on the relative SSP method by comparing the SSP of each distinct performance obligation to the total value of the contract.

We apply judgment in determining the SSP for each distinct performance obligation.

Liquidity Analysis

Our liquidity analysis requires a blend of judgment and estimation, relying on both quantitative data and qualitative insights to assess our ability to sustain our operations over the forward-looking period.

Valuation of long lived assets

Fixed assets and amortizable intangible assets are reviewed for impairment as events or changes in circumstances occur indicating that the carrying value of the asset may not be recoverable.

Undiscounted cash flow analyses are used to determine if the carrying amount of the asset is recoverable.

If impairment is determined to exist, the charge is calculated based on estimated fair value.

Our analysis requires a blend of judgment and estimation, relying on both quantitative data and qualitative insights to assess our ability to sustain our operations over the forward-looking period.

Management’s analysis involves a comprehensive evaluation of numerous factors to determine whether we can continue our operations during the look-forward period.

We evaluate our recent financial performance, liquidity position, and our ability to meet our financial obligations as they become due.

Factors such as financial projections, profitability, cash flow, and debt commitments require estimation and are examined to gauge our financial health.

Our ability to manage our cash flow is another critical aspect of the analysis.

Effective cash flow management ensures that we have sufficient liquidity to cover our operating expenses, debt repayments, and other financial obligations.

Our cash flow projections are reviewed to determine whether we can generate enough cash to sustain our operations during the look-forward period.

Our estimates over our financial projections play a vital role in our analysis.

We utilize various assumptions and factors such as market conditions, customer relationships, our sales pipeline, industry trends, and our strategic initiatives to develop and validate our financial projections.

Conducting a liquidity analysis is an exercise in judgment, requiring us to evaluate data points, forecasts, and qualitative insights to arrive at a comprehensive assessment of our ability to remain cash flow positive during the look-forward period.

In this process, we must exercise caution, recognizing the inherent uncertainties and limitations of our estimations and financial analysis while striving to provide feasible plan that can successfully mitigate conditions and events that may raise doubt of our ability to continue as a going concern.

We evaluate our recent financial performance and our ability to meet our projected financial performance.

Factors such as financial projections, profitability and cash flow require estimation and are examined to gauge our financial health.

Conducting a fair value analysis is an exercise in judgment, requiring us to evaluate data points, forecasts, and qualitative insights to arrive at a comprehensive assessment of our ability to derive value from our assets during the look-forward period.

In this process, we must exercise caution, recognizing the inherent uncertainties and limitations of our estimations and financial analysis while striving to provide feasible plan.

Business Combinations

We account for business combinations by recognizing the fair value of acquired assets and liabilities.

The excess purchase consideration over the fair value of acquired assets and liabilities is recorded as goodwill.

When determining the fair value of assets acquired and liabilities assumed, we make estimates and assumptions, especially with respect to intangible assets such as identified customer relationships and trade names.

We generally determine the fair value of acquired customer relationships using the multi-period excess earnings method, a form of the income approach.

Estimates in valuing identifiable intangible assets include, but are not limited to, projected revenue growth rates, customer retention rates and an appropriate discount rate.

Our estimate of fair value is based upon assumptions we believe to be reasonable, but which are inherently uncertain and, as a result, actual results may differ from estimates.

During the measurement period, we may make adjustments to the fair value of assets acquired and liabilities assumed, with offsetting adjustments to goodwill.

New Accounting Pronouncements

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What changed 10-K

Item 5. Market for Registrant’s Common Equity