Novume(REKR) - 2025 Q1 - Quarterly Report

FORM 10-Q Filing Information This section details the company's Form 10-Q filing, including registrant information, filer status, and common stock outstanding Registrant Information Rekor Systems, Inc. filed its Quarterly Report on Form 10-Q for the period ended March 31, 2025, identifying as a non-accelerated and smaller reporting company with 118,075,944 common shares outstanding Registrant Information | Indicator | Value | | :--- | :--- | | Filing Type | Quarterly Report (10-Q) | | Period Ended | March 31, 2025 | | Registrant | Rekor Systems, Inc. | | Commission File Number | 001-38338 | | Filer Status | Non-accelerated filer, Smaller reporting company | | Common Stock Trading Symbol | REKR | | Common Stock Outstanding (May 13, 2025) | 118,075,944 shares | SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS This section cautions readers about forward-looking statements, highlighting inherent risks that may cause actual results to differ Forward-Looking Statements Disclaimer This section cautions readers about the inherent risks and uncertainties in forward-looking statements, advising against undue reliance and recommending a review of detailed risk factors - The report contains forward-looking statements subject to substantial risks and uncertainties, which may cause actual results to differ materially[7] - Readers are cautioned not to place undue reliance on forward-looking statements and are urged to review risk factors in the Annual Report on Form 10-K[7] PART I - FINANCIAL INFORMATION This part presents the company's unaudited condensed consolidated financial statements, including balance sheets, operations, equity, and cash flows ITEM 1. FINANCIAL STATEMENTS This section presents Rekor Systems, Inc.'s unaudited condensed consolidated financial statements, encompassing balance sheets, operations, equity, cash flows, and detailed notes UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS This section presents the company's unaudited condensed consolidated balance sheets as of March 31, 2025, and December 31, 2024, detailing assets, liabilities, and stockholders' equity Unaudited Condensed Consolidated Balance Sheets | Metric (in thousands) | March 31, 2025 | December 31, 2024 | | :-------------------- | :--------------- | :---------------- | | Total Assets | $79,802 | $82,475 | | Total Liabilities | $46,443 | $48,334 | | Total Stockholders' Equity | $33,359 | $34,141 | | Cash and cash equivalents | $3,851 | $5,013 | | Accounts receivable, net | $7,582 | $7,232 | | Total current assets | $19,953 | $19,930 | UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS This section presents the unaudited condensed consolidated statements of operations for the three months ended March 31, 2025, and 2024, detailing revenue, expenses, and net loss Unaudited Condensed Consolidated Statements of Operations | Metric (in thousands) | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :-------------------- | :-------------------------------- | :-------------------------------- | | Revenue | $9,198 | $9,778 | | Cost of revenue | $4,761 | $5,285 | | Total operating expenses | $14,576 | $17,409 | | Loss from operations | $(10,139) | $(12,916) | | Net loss | $(10,874) | $(18,614) | | Loss per common share | $(0.10) | $(0.24) | UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY This section presents the unaudited condensed consolidated statements of stockholders' equity, detailing changes in common stock, additional paid-in capital, and accumulated deficit Unaudited Condensed Consolidated Statements of Stockholders' Equity | Metric (in thousands) | March 31, 2025 | January 1, 2025 | | :-------------------- | :--------------- | :-------------- | | Common Stock (shares) | 110,912,209 | 104,541,073 | | Common Stock (value) | $11 | $10 | | Additional Paid-In Capital | $305,119 | $294,935 | | Accumulated Deficit | $(270,967) | $(260,093) | | Total Stockholders' Equity | $33,359 | $34,141 | - Stock-based compensation for the three months ended March 31, 2025, was $1,370,000[13] - Issuance of common stock pursuant to the 2025 Sales Agreement contributed $7,659,000 to equity[13] UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS This section presents the unaudited condensed consolidated statements of cash flows for the three months ended March 31, 2025, and 2024, detailing operating, investing, and financing activities Unaudited Condensed Consolidated Statements of Cash Flows | Cash Flow Activity (in thousands) | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Net cash used in operating activities | $(8,079) | $(7,886) | | Net cash used in investing activities | $(337) | $(9,130) | | Net cash provided by financing activities | $7,396 | $13,570 | | Net decrease in cash, cash equivalents and restricted cash | $(1,020) | $(3,446) | | Cash, cash equivalents and restricted cash at end of period | $4,309 | $12,267 | NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS This section provides detailed notes to the unaudited condensed consolidated financial statements, covering accounting policies, acquisitions, leases, debt, and disclosures NOTE 1 – GENERAL, BASIS OF PRESENTATION, AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This note outlines Rekor Systems, Inc.'s business, financial statement basis, significant accounting policies, and addresses liquidity concerns, including insufficient cash for the next twelve months - Rekor Systems, Inc. operates in the roadway intelligence sector, aiming to revolutionize public safety, urban mobility, and transportation management through AI-powered solutions[22] - The Company's existing cash is insufficient to fund its current level of operations for the next twelve months, raising substantial doubt about its ability to continue as a going concern[31] Revenue by Type | Revenue Type (in thousands) | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :-------------------------- | :-------------------------------- | :-------------------------------- | | Recurring revenue | $5,106 | $4,963 | | Product and service revenue | $4,092 | $4,815 | | Total revenue | $9,198 | $9,778 | Revenue by Customer Type | Customer Type Revenue (in thousands) | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :----------------------------------- | :-------------------------------- | :-------------------------------- | | Urban Mobility | $5,529 | $5,614 | | Transportation Management | $423 | $665 | | Public Safety | $3,246 | $3,499 | | Total revenue | $9,198 | $9,778 | - Customer A accounted for 11% of consolidated revenue for the three months ended March 31, 2025[71] - Customer B accounted for 11% of accounts receivable as of March 31, 2025[72] NOTE 2 – ACQUISITION This note details the January 2, 2024, acquisition of All Traffic Data Services, LLC (ATD), accounted for as a business combination, resulting in recognized goodwill and intangible assets - The Company acquired All Traffic Data Services, LLC (ATD) on January 2, 2024, for approximately $20,576,000[79][80] - The acquisition resulted in the recognition of $3,720,000 in goodwill and $12,100,000 in intangible assets[82] NOTE 3 - LEASES This note details the company's operating and financing leases, including costs, weighted-average terms, discount rates, and a Q1 2025 lease modification Lease Cost | Lease Cost (in thousands) | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :------------------------ | :-------------------------------- | :-------------------------------- | | Operating lease cost | $710 | $672 | | Finance lease cost | $353 | $221 | | Total lease cost | $1,063 | $893 | Lease Metrics | Lease Metric | March 31, 2025 | December 31, 2024 | | :------------- | :------------- | :---------------- | | Operating leases (weighted-average remaining lease term) | 7.05 years | 7.56 years | | Financing leases (weighted-average remaining lease term) | 2.51 years | 2.19 years | | Operating leases (weighted-average discount rate) | 12.0% | 9.2% | | Financing leases (weighted-average discount rate) | 9.0% | 9.0% | - A lease amendment in Q1 2025 decreased both operating lease liability and the corresponding right-of-use asset by $1,344,000[84] NOTE 4 – SUPPLEMENTAL NON CASH DISCLOSURES OF CASH FLOW INFORMATION This note provides supplemental disclosures of non-cash activities, including cash paid for interest and taxes, and significant non-cash financing events like ATD Holdback Shares settlement Non-Cash Financing Activities | Non-Cash Financing Activities (in thousands) | 2025 | 2024 | | :------------------------------------------- | :--- | :--- | | Settlement of ATD Holdback Shares with common stock | $(1,156) | - | | Fair value of shares issued in connection with the acquisition of ATD | - | $8,893 | | Fair value of ATD Holdback Shares at the acquisition date | - | $1,635 | | 2023 Promissory Note redemption premium settled in shares | - | $1,875 | NOTE 5 – INTANGIBLE ASSETS AND GOODWILL This note details the company's intangible assets and goodwill, including the ATD acquisition purchase price allocation, identifiable asset breakdown, net values, and amortization expenses - Goodwill of $3,720,000 was recognized from the ATD acquisition[88] Identifiable Intangible Assets | Identifiable Intangible Assets (in thousands) | March 31, 2025 | December 31, 2024 | | :------------------------------------------ | :--------------- | :---------------- | | Customer relationships | $15,300 | $15,300 | | Marketing related | $900 | $900 | | Internally capitalized software | $247 | $247 | | Total | $16,447 | $16,447 | | Less: accumulated amortization | $(2,297) | $(1,997) | | Identifiable intangible assets, net | $14,150 | $14,450 | - Amortization expense for intangible assets was $300,000 for the three months ended March 31, 2025, a decrease from $1,172,000 in the prior year[89] NOTE 6 – DEBT This note outlines the company's debt obligations, including STS Notes and Series A Prime Revenue Sharing Notes, detailing principal, interest rates, maturities, and associated expenses - The aggregate balance of STS Notes payable was $1,000,000 as of March 31, 2025, maturing on June 17, 2025[92] - Series A Prime Revenue Sharing Notes totaling $15,000,000 were issued on December 15, 2023, with a fixed annual interest rate of 13.25% and a maturity date of December 15, 2026[94] Interest Expense | Interest Expense (in thousands) | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :------------------------------ | :-------------------------------- | :-------------------------------- | | Contractual interest expense | $565 | $794 | | Amortization of debt issuance costs | $49 | $399 | | Total interest expense | $614 | $1,193 | | Less: interest income | $(24) | $(139) | | Total interest expense, net | $590 | $1,054 | Principal Amounts Due | Principal Amounts Due (in thousands) | 2025 (remaining) | 2026 | 2027 | 2028 | Total | | :----------------------------------- | :--------------- | :--- | :--- | :--- | :---- | | Long-term notes payable | $1,060 | $15,083 | $86 | $25 | $16,254 | NOTE 7 – INCOME TAXES This note explains the company's income tax position, including a full valuation allowance against net deferred taxes due to historical losses, resulting in no recorded tax expense or benefit - The Company maintains a full valuation allowance against its net deferred taxes due to the unlikelihood of realizing future benefits from these assets[101] - No income tax expense or benefit was recorded for the three months ended March 31, 2025, and 2024[103] NOTE 8 – COMMITMENTS AND CONTINGENCIES This note details legal commitments and contingencies, including a breach of contract lawsuit and an OSHA claim, which the company intends to vigorously defend - H.C. Wainwright & Co., LLC filed a breach of contract lawsuit seeking damages of at least $825,000 cash and warrants for 481,100 shares, plus an additional $2,156,000 and warrants for 805,000 shares related to the 2024 Public Offering[108][109] - An OSHA claim, initially dismissed, was appealed by claimants; a liability hearing was held, and a damages hearing was cancelled pending the court's findings on liability[111][112][113] NOTE 9 – STOCKHOLDERS' EQUITY This note outlines significant changes in stockholders' equity, including authorized common stock, At Market Issuance Sales Agreement, ATD holdback shares, 2024 Public Offering, and 2023 Promissory Note redemption - Authorized common stock increased from 100,000,000 to 300,000,000 shares on April 22, 2024[115] - Under the At Market Issuance Sales Agreement, the Company issued 5,148,600 shares for net cash proceeds of $7,659,000 as of March 31, 2025[117] - On January 2, 2025, 664,329 holdback shares were issued to ATD's former owners, completing the ATD Acquisition purchase price[118] - The 2024 Public Offering generated approximately $26,362,000 in net proceeds from the sale of 11,500,000 shares[120] - The redemption of 2023 Promissory Notes resulted in a $4,693,000 loss on extinguishment of debt, including a $1,875,000 redemption payment settled with 750,000 common shares[126] NOTE 10 – EQUITY INCENTIVE PLAN This note describes the 2017 Equity Award Plan, detailing equity grants like stock options and RSUs, including compensation expense and activity, aimed at attracting and retaining personnel - An additional 7,912,216 shares were registered for issuance under the 2017 Equity Award Plan on April 29, 2024[130] - No stock compensation expense was recognized for stock options for the three months ended March 31, 2025 and 2024[132] - Stock compensation expense related to RSUs was $1,370,000 for the three months ended March 31, 2025, an increase from $1,167,000 in the prior year[135] RSU Activity | RSU Activity (shares) | Outstanding Jan 1, 2025 | Granted | Vested | Forfeited | Outstanding Mar 31, 2025 | | :-------------------- | :---------------------- | :------ | :----- | :-------- | :----------------------- | | Number of Shares | 5,776,426 | 46,300 | (622,434) | (783,367) | 4,416,925 | NOTE 11 – LOSS PER SHARE This note presents the calculation of basic and diluted loss per common share, excluding potentially dilutive securities due to their anti-dilutive effect resulting from the net loss Loss Per Share | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :----- | :-------------------------------- | :-------------------------------- | | Net loss attributable to shareholders | $(10,874) | $(18,614) | | Weighted average common shares outstanding - basic and diluted | 106,815,912 | 78,894,017 | | Basic and diluted loss per share | $(0.10) | $(0.24) | - 9,234,891 potentially dilutive securities (warrants, options, RSUs) were excluded from diluted loss per share for Q1 2025 due to their anti-dilutive effect[139] NOTE 12 – SUBSEQUENT EVENTS This note discloses subsequent events after the reporting period, specifically additional common stock issuances under the At Market Issuance Sales Agreement - From March 31, 2025, to May 13, 2025, the Company issued 5,716,600 shares of common stock for net cash of $4,995,000 under the Sales Agreement[141] ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section provides management's discussion and analysis of Q1 2025 financial condition and operating results, including business overview, opportunities, trends, and liquidity Cautionary Note Regarding Forward-Looking Statements This section outlines specific factors that could cause actual results to differ from forward-looking statements, including operating, reputational, and financial market risks - Specific factors that might cause actual results to differ from expectations include operating risks, reputational risks, financial market conditions, acquisition integration, capital access, political/legal/economic conditions, litigation, competition, product development, strategic plan execution, profitability, personnel retention, cybersecurity, and intellectual property claims[144][153] General This section provides a general overview of Rekor's business, its vision for roadway intelligence, and its approach to transforming infrastructure Overview Rekor leads in roadway intelligence, leveraging AI to modernize public safety, urban mobility, and transportation management, aiming for safer, smarter, and more sustainable roadways - Rekor is at the forefront of modernizing public safety, urban mobility, and transportation management with AI-powered solutions[147] - The company's vision is to improve lives by enabling safer, smarter, and more sustainable roadways and communities through actionable mobility data[148] A New Operating System for Roadways Rekor is deploying AI solutions to transform transportation infrastructure into a new digital operating system for roadways, aiming for enhanced safety, optimized traffic flow, and cost savings - Rekor is building a new digital infrastructure operating system for roadways through public-private collaborations, deploying AI solutions since 2018[151][152] - Key benefits include enhanced roadway safety, optimized traffic flow, cost savings & efficiency, improved data accuracy & insights, border & freight management, and uninsured driver reduction[154] Roadway Intelligence Rekor leads in roadway intelligence, using its Rekor One® engine to transform vast mobility data from IoT devices, sensors, and cameras into real-time, actionable insights - Rekor One® roadway intelligence engine aggregates and analyzes trillions of data points from IoT devices, roadway sensors, cameras, and partner networks[160] - Solutions support various use cases including traffic analysis, operations & management, enhanced roadway safety, border & freight management, and insurance compliance & public safety[161][162] Opportunities, Trends and Uncertainties This section identifies key opportunities like the smart city market and AI for infrastructure, alongside challenges such as market adaptability, profitability, and cybersecurity risks - Opportunities include the growing Smart City Market, AI for Infrastructure, new and expanded uses for vehicle recognition systems, connected vehicle data, GPU improvements, edge processing, accelerated business development, and benefits from the IIJA and BIL[163][164][165][166][167] - Challenges include the adaptability of the market, difficulties in executing corporate strategy, inability to achieve profitability, retaining qualified personnel, competing effectively, cybersecurity risks, and intellectual property claims[164][167][168] Components of Operating Results This section defines the components of operating results, including revenues from roadway data and traffic management, direct costs, various operating expenses, other income/expense, and income tax provisions - Revenues are primarily derived from licensing and sale of roadway data and traffic management products/services, recognized upon transfer of control[169] - Operating expenses consist of general and administrative, sales and marketing, research and development, and depreciation and amortization, with personnel costs being the most significant component[171] - Other income (expense) includes legal settlements, interest income/expense, debt extinguishment costs, and gains/losses on asset sales or fair value changes[177] - The company maintains a full valuation allowance against deferred tax assets due to a history of losses[179] Critical Accounting Estimates and Assumptions This section refers to the Annual Report on Form 10-K for a comprehensive discussion of the company's critical accounting estimates and assumptions - A comprehensive discussion of critical accounting estimates and assumptions is included in the Annual Report on Form 10-K for the year ended December 31, 2024[180] New Accounting Pronouncements This section directs readers to Note 1 of the unaudited condensed consolidated financial statements for information on new accounting pronouncements - Information regarding new accounting pronouncements is provided in Note 1 to the unaudited condensed consolidated financial statements[181] Results of Operations This section analyzes the company's operating results for Q1 2025 compared to the prior year, detailing revenue, expenses, and net loss Comparison of the Three Months Ended March 31, 2025 and the Three Months Ended March 31, 2024 The company saw a 6% revenue decrease and 16% operating expense reduction in Q1 2025, improving net loss due to cost containment and no prior debt extinguishment loss Comparison of Operating Results | Metric (in thousands) | 2025 | 2024 | Change ($) | Change (%) | | :-------------------- | :--- | :--- | :--------- | :--------- | | Revenue | $9,198 | $9,778 | $(580) | -6% | | Cost of revenue | $4,761 | $5,285 | $(524) | -10% | | General and administrative expenses | $7,286 | $7,662 | $(376) | -5% | | Selling and marketing expenses | $1,757 | $2,414 | $(657) | -27% | | Research and development expenses | $3,977 | $5,001 | $(1,024) | -20% | | Depreciation and amortization | $1,556 | $2,332 | $(776) | -33% | | Total operating expenses | $14,576 | $17,409 | $(2,833) | -16% | | Net loss | $(10,874) | $(18,614) | $7,740 | 42% | - The decrease in revenue was primarily attributable to adverse weather conditions and a slowdown in project activity, partially driven by ongoing uncertainty within the government sector[184] - The decrease in operating expenses was primarily due to cost containment efforts, including reduced professional services and payroll-related costs, and a prior impairment affecting depreciation and amortization[187][188][189][190] - The significant improvement in other income (expense) was mainly due to the absence of a $4,693,000 loss on extinguishment of debt recorded in the prior year[191][192] Non-GAAP Measures This section defines and reconciles non-GAAP financial measures like EBITDA, Adjusted EBITDA, Adjusted Gross Profit, and Adjusted Gross Margin EBITDA and Adjusted EBITDA This section defines and reconciles EBITDA and Adjusted EBITDA, non-GAAP measures used to assess debt servicing ability, both showing improvement for Q1 2025 - EBITDA is calculated as net loss before interest, taxes, depreciation, and amortization[193] - Adjusted EBITDA further adjusts for impairment, debt extinguishment loss, stock-based compensation, and other unusual items[193] EBITDA and Adjusted EBITDA | Metric (in thousands) | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :-------------------- | :-------------------------------- | :-------------------------------- | | Net loss | $(10,874) | $(18,614) | | Interest | $590 | $1,054 | | Depreciation and amortization | $1,556 | $2,332 | | EBITDA | $(8,728) | $(15,228) | | Share-based compensation | $1,370 | $1,167 | | Loss on extinguishment of debt | - | $4,693 | | Adjusted EBITDA | $(7,358) | $(9,368) | Adjusted Gross Profit and Adjusted Gross Margin Adjusted Gross Margin increased to 48.2% in Q1 2025 from 46.0% in Q1 2024, driven by a higher mix of software sales - Adjusted Gross Profit is revenue less cost of revenue, excluding depreciation and amortization[195] - Adjusted Gross Margin is Adjusted Gross Profit divided by revenue[195] Adjusted Gross Profit and Adjusted Gross Margin | Metric (in thousands) | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :-------------------- | :-------------------------------- | :-------------------------------- | | Revenue | $9,198 | $9,778 | | Cost of revenue, excluding depreciation and amortization | $4,761 | $5,285 | | Adjusted Gross Profit | $4,437 | $4,493 | | Adjusted Gross Margin | 48.2% | 46.0% | - The increase in Adjusted Gross Margin is typically correlated to a higher mix of software sales versus service-type work[197] Key Performance Indicators This section discusses key performance indicators, including recurring revenue growth and remaining performance obligations, offering insights into operational efficiency and future revenue Recurring Revenue Growth The company prioritizes recurring revenue for predictability, achieving 3% growth in Q1 2025, and plans continued focus on long-term contracts for future expansion - Recurring revenue increased by 3% to $5,106,000 for the three months ended March 31, 2025, from $4,963,000 in the prior year[199] - The company expects to continue focusing on long-term contracts with recurring revenue to drive future growth[199] Performance Obligations Total remaining performance obligations as of March 31, 2025, were approximately $14,485,000, an increase of 0.2% from December 31, 2024 - Total remaining performance obligations as of March 31, 2025, were approximately $14,485,000, an increase of 0.2% from December 31, 2024[200] - Approximately 89% of this amount is expected to be recognized as revenue over the succeeding twelve months, with the remainder over the following four years[200] Liquidity and Capital Resources This section analyzes the company's liquidity and capital resources, including cash flow activities and its going concern assessment Cash Flow Summary Net cash used in operating activities slightly increased, while investing activities significantly decreased due to the prior ATD acquisition, and financing activities saw a reduction from lower equity offering proceeds Cash Flow Summary | Cash Flow Activity (in thousands) | 2025 | 2024 | Change ($) | Change (%) | | :-------------------------------- | :--- | :--- | :--------- | :--------- | | Net cash used in operating activities | $(8,079) | $(7,886) | $(193) | -2% | | Net cash used in investing activities | $(337) | $(9,130) | $8,793 | 96% | | Net cash provided by financing activities | $7,396 | $13,570 | $(6,174) | -45% | | Net decrease in cash, cash equivalents and restricted cash | $(1,020) | $(3,446) | $2,426 | -70% | - The decrease in net cash used in investing activities was primarily due to the $8,969,000 net cash outflow related to the ATD acquisition in the prior period[203] - Net cash provided by financing activities decreased due to lower proceeds from the 2025 Sales Agreement ($7,659,000) compared to the 2024 Public Offering ($26,362,000) in the prior year[204] Liquidity The company's liquidity assessment indicates insufficient cash for the next twelve months, raising substantial doubt about its going concern ability, prompting active exploration of external financing and expense reduction plans - As of March 31, 2025, the company had working capital of $3,073,000 and a net loss of $10,874,000[207] - Existing cash is insufficient to fund current operations for the next twelve months, leading to substantial doubt about the company's ability to continue as a going concern[211] - The company is actively reviewing and exploring external financing options and has contingency plans to reduce or defer expenses[32] ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK As a smaller reporting company, Rekor Systems, Inc. is exempt from providing quantitative and qualitative disclosures regarding market risk - Rekor Systems, Inc. is not required to provide quantitative and qualitative disclosures about market risk as a 'smaller reporting company'[214] ITEM 4. CONTROLS AND PROCEDURES This section reports on the effectiveness of disclosure controls and procedures, concluding they were effective as of March 31, 2025, with no material changes to internal control over financial reporting Evaluation of Disclosure Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of March 31, 2025 - Management, including the principal executive officer and principal financial officer, concluded that the company's disclosure controls and procedures were effective as of March 31, 2025[215][217] Changes to Internal Control over Financial Reporting There were no material changes in internal control over financial reporting during the most recent fiscal quarter - There were no changes in internal control over financial reporting during the most recent fiscal quarter that materially affected, or are reasonably likely to materially affect, internal control over financial reporting[218] PART II – OTHER INFORMATION This part provides additional information, including legal proceedings, risk factors, equity sales, defaults, mine safety disclosures, and other corporate details ITEM 1. LEGAL PROCEEDINGS This section details ongoing legal proceedings, including a breach of contract lawsuit and an OSHA claim, which the company believes are without merit and intends to vigorously defend - H.C. Wainwright & Co., LLC filed a breach of contract lawsuit seeking compensatory and consequential damages, including cash fees and warrants, related to capital raises and the 2024 Public Offering[222][224][225] - An OSHA claim, initially dismissed, was appealed; a liability hearing was held, and a damages hearing was cancelled pending the court's findings on liability[227][228][229] - The Company believes these claims are without merit and intends to vigorously defend itself[226][230] ITEM 1A. RISK FACTORS This section introduces a new risk factor regarding tariffs and trade policy changes, which could adversely impact the company's supply chain and financial performance, and refers to the Annual Report on Form 10-K for comprehensive risks - A new risk factor highlights that tariffs and trade policy changes could significantly increase hardware component costs, potentially reducing gross margins and adversely affecting financial performance[231] - Investors are encouraged to review the risk factors disclosed in the Annual Report on Form 10-K, supplemented by this Form 10-Q[232] ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS The company reported no unregistered sales of equity securities or use of proceeds during the reporting period - There were no unregistered sales of equity securities or use of proceeds to report[233][234] ITEM 3. DEFAULTS UPON SENIOR SECURITIES The company reported no defaults upon senior securities during the reporting period - There were no defaults upon senior securities[235] ITEM 4. MINE SAFETY DISCLOSURES This item regarding mine safety disclosures is not applicable to the company - Mine safety disclosures are not applicable to the company[236] ITEM 5. OTHER INFORMATION The company reported no adoption, modification, or termination of Rule 10b5-1 or non-Rule 10b5-1 trading arrangements by directors or officers during Q1 2025 - No Rule 10b5-1 or non-Rule 10b5-1 trading arrangements were adopted, modified, or terminated by directors or officers during the quarter ended March 31, 2025[237] ITEM 6. EXHIBITS This section lists all exhibits filed with the Form 10-Q, including amendments to corporate documents, various certifications, and XBRL documents - Exhibits include amendments to the Certificate of Incorporation, Amended and Restated Bylaws, Rule 13a-14(a)/15d-14(a) Certifications, Section 1350 Certifications, and Inline XBRL documents[238] SIGNATURES This section contains the official signatures of the company's executive officers, certifying the report's accuracy and completeness Report Signatures The report was signed by Robert A. Berman, Interim President Chief Executive Officer and Chairman of the Board, and Eyal Hen, Chief Financial Officer, on May 14, 2025 - The report was signed by Robert A. Berman, Interim President Chief Executive Officer and Chairman of the Board, and Eyal Hen, Chief Financial Officer, on May 14, 2025[243]