REKOR SYSTEMS, INC. The following management's discussion and analysis of our financial condition
and results of operations should be read in conjunction with our condensed
consolidated financial statements and related notes included in this Annual
Report and the historical financial statements of
Overview
We are a leader in the field of advanced vehicle identification and management systems driven by leading edge advances in artificial intelligence ("AI"). In development for over five years using AI processes, including machine learning algorithms, our core software enables the creation of more powerful and capable vehicle recognition systems that can be deployed at a fraction of the cost of traditional vehicle recognition systems. The software enables a wider field of view, greater light sensitivity, recognitions at faster speeds and higher accuracy rates, in addition to the ability to identify the color, make and type of a vehicle and its direction of travel. These capabilities are particularly useful in solving a wide variety of real-world roadway and vehicle related challenges. In addition, the reductions in cost have opened up a number of new uses for vehicle recognition technology that were not previously cost effective. We currently provide products and services for governmental organizations, for large and small businesses and for individuals throughout the world. Customers are currently using our products or services in over 70 countries, with offerings for smart cities, public safety, security, transportation, parking and logistics.
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Currently, our business activities include providing professional services in
the government contracting, aerospace and aviation industries. As part of the
development of a new line of products for the public safety and security
markets, we acquired industry leading vehicle recognition software in
On
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the ticker symbol for our common stock on the
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the ticker symbol for our Series A Preferred Stock on the OTC Markets OTCQB exchange to "REKRP" and the CUSIP number for our Series A Preferred Stock to 759419 203; and
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the ticker symbol for warrants on the OTC Markets OTCQB exchange to "REKRW" and the CUSIP number for the warrants to 759419 112.
Technology Segment. The Technology Segment operations are conducted by our
wholly owned subsidiary,
Since the OpenALPR Technology Acquisition, we have expanded our vehicle recognition product and service lines into a much broader range of customer segments, starting with public safety. We shifted from a perpetual licensing model to a subscription-based model, rebranded the software suites as "Watchman" and "Car-Check" and released several packaged hardware solutions with each of these vehicle recognition engines. By the end of 2019, we had a portfolio of more than 10 products, permitting us to offer full-scale vehicle recognition services for nearly any large or small public agency, commercial or residential setting.
Our vehicle recognition software currently has the capability to analyze multi-spectral images and/or video streams produced by nearly any Internet Protocol security camera and concurrently extract license plate data by state from more than 70 countries, as well as provide the vehicle's make, color, type, and direction of travel. When combined with speed optimized code, parallel processing capability and best-in-class accessories, such as cameras and communications modules, Watchman software delivers vehicle recognition solutions at extremely high-capture rates and with a high degree of accuracy. Additionally, our multi-spectral capabilities enable reading of license plates and vehicle characteristics in unusually difficult conditions (e.g. low lighting, poor weather, extreme camera viewing angles, and obstructions).
Prior to the development of our vehicle identification software, highly accurate results were not available using a typical Internet Protocol camera. We believe that the ability to use less expensive hardware will change the dynamics of the existing public safety market, enabling the creation of increasingly robust networks with cameras at more locations. In addition, we expect the cost advantages and high degree of accuracy to create competitive advantages compared to electronic tolling systems and logistics operations that currently rely on RFID systems. We also believe our lower costs, our distance and field of view capabilities and the ability to capture additional vehicle information, such as vehicle direction and color, make and type of vehicle, have opened opportunities in other market segments such as parking operations, school safety, retail customer loyalty programs and particularly smart cities and smart roadways. Smart roadway systems, sometimes referred to as "smart transport" or "intelligent transport systems" ("ITS"), inclusive of parking management and guidance, passenger information, and traffic management systems, can optimize the movement of vehicles to make travel safer and more efficient. These technologies are expected to enable users to be more coordinated, better informed, and make safer and smarter use of transport networks.
Our vision is "AI with a Purpose." We intend to evolve beyond vehicle recognition for public safety markets into the recognition and analysis of vehicles activities (inclusive of motion and behaviors) to identify unsafe situations (e.g. wrong way driving, pedestrian on roadway, etc.), optimize traffic flows, and develop numerous other data driven applications centered around vehicle knowledge.
Professional Services Segment.We provide professional services and staffing
solutions to the government contracting and the aerospace and aviation
industries. The Professional Services Segment includes
As part of our strategic shift in fiscal year 2019, we are focusing on the Technology Segment and further developing our footprint across different industries by further developing our AI based technologies and distributing and licensing products and services with advanced vehicle recognition features. Current customers are using these products and services for: a) toll collection and traffic analysis in the transportation market, b) school and traffic safety, parking and other law enforcement applications in the public safety market, c) perimeter management and surveillance in the private security market, d) operations and retail customer loyalty programs and e) vehicle tracking, perimeter security and warehouse operations in the logistics market.
As a result of our strategic shift, during the third quarter of 2019, we began
to separately report the results of Global and considered including
substantially all of the assets and liabilities comprising Global as held for
sale operations. We are also reporting the operating results and cash flows of
Global as held for sale operations, and thus they have been excluded from
continuing operations and segment results for all periods presented. Prior to
the third quarter of 2019, the operating results for Global were presented in
the Professional Services segment. The assets and liabilities of Global are
presented as current and long-term assets and liabilities of businesses held for
sale in the condensed consolidated balance sheets. Since we adopted a formal
plan to sell Global in
General
The information provided in this discussion and analysis of
Our financial results are impacted principally by the demand by clients for our products and services, the degree to which full-time staff can be kept occupied in revenue-generating activities and the success of our sales team in generating client engagements.
Unexpected changes in the demand for our products and services can result in significant variations in revenues, and present a challenge to optimal hiring, staffing and use of consultants. The volume of work performed can vary from period to period.
The statements of operations and other information provided in this discussion
and analysis of the financial condition and results of operations of
Acquisitions
On
On
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Opportunities, Trends and Uncertainties
We look to identify the various trends, market cycles, uncertainties and other factors that may provide us with opportunities and present challenges that impact our operations and financial condition from time to time. Although there are many that we may not or cannot foresee, we believe that our results of operations and financial condition for the foreseeable future will be primarily affected by the following:
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AI for the Roadway - We believe that the application of AI to the analysis roadway condition will significantly affect vehicular travel in the future by assisting in the intelligent optimization of traffic flows and the identification of anomalous and unsafe movements - e.g. wrong way, stopped vehicle, pedestrian on the roadway. Marketers and drive-thru retailers with loyalty programs can benefit from the rapid identification of existing and potential customers and streamlining vehicular flow.
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Graphic Processing Unit ("GPU") Improvements - We expect our business to benefit as a result of more powerful and affordable GPU hardware that has recently been developed. These GPUs are more efficient for image processing because their highly parallel structure makes them more efficient than general-purpose central procession units ("CPUs") for algorithms that process large blocks of data, such as those produced by video streams. GPUs also provide superior memory bandwidth and efficiencies as compared to their CPU counterparts. The most recent versions of our software have been designed to use the increased GPU speeds to accelerate image recognitions. The GPU market is predicted to grow as a result of a surge in adoption of the Internet of Things ("IoT") by the industrial and automotive sectors. As GPU manufacturers increase production volume, we hope to benefit from the reduced cost to manufacture the hardware included in our products or available to others using our services.
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Adaptability of the Current ALPR Market- We have made a considerable investment in our advanced vehicle recognition systems because we believe their increased accuracy and affordability will allow them to compete effectively with existing providers. Based on published benchmarks, our software currently outperforms competitors in almost every metric. However, large users of existing ALPR Technology, such as toll roads, have long-term contracts with service providers that have made considerable investments in their existing technologies and may not consider the improvements in accuracy or reductions in cost sufficient to justify abandoning their current systems in the near future. In addition, existing providers may be able to reduce the cost of their current offerings or elect to reduce prices and accept reduced profitability while working to develop or secure their own advanced vehicle recognition systems. As a result, our success in establishing a major position in these markets will depend on being able to effectively communicate our presence, develop strong customer relationships, and maintain leadership in providing the capabilities that customers want. As with any large market, this will require considerable effort and resources.
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New and Expanded Uses for Vehicle Recognition Systems - We believe that reductions in the cost of vehicle recognition products and services will significantly broaden the market for these systems. We currently serve a number of users who could not afford the cost or adapt to, the restrictions of conventional vehicle recognition systems. These include smaller municipalities, homeowners' associations, and organizations finding new applications such as innovative customer loyalty programs. We have seen and responded to an increase in the number of smaller jurisdictions and municipalities that are testing ALPR systems or that issued requests for proposals to install a network of ALPR cameras. We also expect the availability of faster, higher accuracy, lower cost systems to dramatically increase the ability of crowded urban areas to manage traffic congestion and implement smart city programs. We do not currently have the resources to develop all of these entirely new markets by ourselves, so we will need to rely on affiliations with other partners, who may or may not realize the significant benefits that we envision from these new uses.
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Expansion of Automated Enforcement of Motor Vehicle Laws - We believe that future legislation will allow for auto enforcement of motor vehicle regulations to be expanded as the types of violations authorized for automated enforcement increase and experience provides localities with a better understanding of the circumstances where automated enforcement is beneficial. For example, there are now 17 states that allow for the automatic enforcement of violations by vehicles that pass a school bus displaying its flashing red lights and a stop sign. In addition, due to high rates of fatalities and injuries to law enforcement and other emergency response crews on roadsides, several states are considering authorizing automated enforcement of violations where motorists fail to slow down and/or move over for emergency responders and law enforcement vehicles at the side of the road. Legislative implementation is a deliberative and necessarily time-consuming process. However, as states expand auto enforcement, the market for our products and services should increase and broaden in the public safety market
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Increasing Smart City Market - Nokia has approved the use of our OpenALPR
software for its smart city offerings. According to a research report "Smart
Cities Market by Smart Transportation (Type, Solutions and Services), Smart
Buildings (Type, Solutions and Services),
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Accelerated Business Development and Marketing - Our ability to compete in a large, competitive and rapidly evolving industry will require us to achieve and maintain a leadership position. As a result, we have accelerated our business development and marketing activities within the Technology Segment to increase awareness and market adoption of our new technology and products within the market. However, the speed at which these markets grow to the degree of which our products and services are adopted is uncertain.
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Ability to Scale and Balance Production to Meet Demand - While we have arranged manufacturing capabilities for our products, we are unproven in our ability to deliver large volumes of products at our high-quality standards.
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Sales Cycle - As many of our products are new to market, their acceptance and integration into the intended markets is uncertain and we do not have sufficient historical experience to accurately predict revenues as a result of their implementation.
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We believe that recent developments in computing capabilities, such as GPU advances, and new techniques of analysis, sometimes referred to broadly as AI, have broadened the market for vehicle recognition technology and created new opportunities in existing markets. With our new line of products and services, our Technology Segment is working to actively exploit these opportunities. With the anticipated continuation of a stable economic outlook for the government contracting, we believe that the outlook for the operations of our subsidiaries in the Professional Services Segment remains positive.
Considerable uncertainty currently exists concerning the extent of spread, efficaciousness of countermeasures and severity of the economic impact of the Covid19 corona virus. This has had, and may continue to have, a severe impact on the financial markets that we depend on to fund our operations. If these economic and market conditions continue for an extended period of time, it could have a significant impact on our financial performance and ability to execute our business strategy. Other than as described above and elsewhere in this Annual Report on Form 10-K, we are not aware of any trends, events or uncertainties that are likely to have a material effect on our financial condition.
NeoSystems Merger
We filed a Registration Statement on Form S-1 with the
Sale of Note
On
Promissory Notes
2018 Promissory Note
On
18
2019 Promissory Note
On
Other than as discussed above and elsewhere in this Annual Report on Form 10-K, we are not aware of any trends, events or uncertainties that are likely to have a material effect on our financial condition.
Public Offering of Common Stock
On
At-the-Market Agreement
On
Sales of our common stock under the Sales Agreement are to be issued and sold
pursuant to our shelf registration statement on Form S-3 (File No 333-224423),
previously filed with the
Components of Revenues and Expenses
Revenues
We generate our revenues substantially from two sources: (1) licensing and subscription revenues for software and related products and services and (2) professional services to clients.
Revenue is recognized upon transfer of control of promised products and services to our customers, in an amount that reflects the consideration we expect to receive in exchange for those products and services. If the consideration promised in the contract includes a variable amount, for example maintenance fees, we include an estimate of the amount we expect to receive in the total transaction price, if it is probable that a significant reversal of cumulative revenue recognized will not occur.
We determine the amount of revenue to be recognized through application of the following steps:
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Identification of the contract, or contracts, with a customer
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Identification of the performance obligations in the contract
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Determination of the transaction price
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Allocation of the transaction price to the performance obligations in the contract
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Recognition of revenue when, or as, performance obligations are satisfied
The subscription revenues from software licenses, technology products and services are comprised of fees that provide customers with access to the software licenses and related support and updates during the term of the arrangement. Revenue is generally recognized ratably over the contract term. During the second quarter of 2019, we changed our method of selling in the Technology Segment from perpetual software licenses to monthly service subscriptions. This change is expected to impact our revenue in the short term as we will now recognize revenue ratably over the contract period rather than at a point in time when the customer takes possession of the license. The amount of contract revenue received over the long term is not expected to decline. Our subscription services arrangements are non-cancelable and do not contain refund-type provisions.
The professional services contracts recognize revenue based on a time and materials or fixed fees basis. These revenues are recognized as the services are rendered for time and materials contracts, on a proportional performance basis for fixed price contracts, or ratably over the contact term for fixed price contracts with subscription services.
Costs of Revenues
Direct costs of revenues consist primarily of that portion of technical and non-technical salaries and wages and payroll-related costs incurred in connection with revenue generating activities. Direct costs of revenues also include production expenses, sub-consultant services, and other expenses that are incurred in connection with our revenue generating activities. Direct costs of revenues exclude that portion of technical and non-technical salaries and wages related to marketing efforts, vacations, holidays, and other time not spent directly generating fees under existing contracts. Such costs are included in operating expenses. We expense direct costs of revenues when incurred.
Operating Expenses
Our operating expenses consist of general and administrative expenses, sales and marketing and research and development. Personnel costs are the most significant component of operating expenses and consist of salaries, benefits, bonuses, payroll taxes and stock-based compensation expense. Operating expenses also include depreciation, amortization and impairment of assets.
General and Administrative
General and administrative expense consists of personnel costs for our executive, finance, legal, human resources and administrative departments. Additional expenses include travel and entertainment, professional fees and insurance.
We expect our general and administrative expense to continue to increase in absolute dollars for the foreseeable future due to additional costs associated with accounting, compliance, insurance and investor relations as a public company. However, we expect our general and administrative expense to decrease as a percentage of our revenue over the long term, although our general and administrative expense may fluctuate as a percentage of our revenue from period to period due to the timing and extent of these expenses.
Sales and Marketing
Sales and marketing expenses consist of personnel costs, marketing programs, travel and entertainment associated with sales and marketing personnel, expenses for conferences and trade shows. We intend to make significant investments in our sales and marketing expenses to grow revenue, further penetrate the market and expand our customer base. With the release of our Partners Program we expect our sales and marketing expense to increase in the future.
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Research and Development
Research and development expenses consists of personnel costs, software used to develop our products and consulting and professional fees for third-party development resources. Our research and development expenses support our efforts to continue to add capabilities to our existing products and the strategic shift to develop additional capabilities and improve our AI software.
We expect our research and development expense to continue to increase in absolute dollars for the foreseeable future as we continue to invest in research and development efforts to enhance the functionality of our AI software. However, we expect our research and development expense to decrease as a percentage of our revenue over the long term, although our research and development expense may fluctuate as a percentage of our revenue from period to period due to the timing and extent of these expenses.
Other Income (Expense)
Other income (expense) net consists primarily of interest expense in connection with our debt arrangements, costs associated with the extinguishment of our debt arrangements, gains and losses on the sale of fixed assets and interest income earned on cash and cash equivalents and short-term investments.
Income Tax Provision
Income tax provision consists primarily of income taxes in certain domestic jurisdictions in which we conduct business. 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.
Results of Operations
The results and the analysis of operations below is solely related to continuing operations and do not include results of operations of our subsidiary, Global, which is being held for sale. 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. Historical results are not necessarily indicative of future results.
Year ended December 31,
2019 2018
(Dollars in thousands)
Revenue:
Technology $5,469 $3,522
Professional Services 13,851 16,532
Total revenue 19,320 20,054
Cost of revenue:
Technology 1,652 1,642
Professional Services 7,406 8,336
Total cost of revenue 9,058 9,978
Gross profit:
Technology 3,817 1,880
Professional Services 6,445 8,196
Gross profit 10,262 10,076
Operating expenses: General and administrative expenses 14,151 13,310 Selling and marketing expenses 2,222 1,758 Research and development expenses 1,429 131 Impairment of intangibles
1,549 -
Operating expenses 19,351 15,199
Loss from operations (9,089) (5,123)
Other expense:
Loss on extinguishment of debt (1,158) -
Interest expense (4,098) (492)
Other expense (20) (65)
Total other expense (5,276) (557)
Loss before income taxes (14,365) (5,680)
Income tax provision (47) (29)
Net loss from continuing operations
Comparison of the Years Ended
Restructuring
As part of our shift in strategic direction in 2019, we are focusing on our
Technology Segment and management has been evaluating the disposition of the
subsidiaries in our Professional Services Segment: AOC Key Solutions, Global and
Firestorm. As part of evaluating the future of Firestorm, management decided to
sell Secure Education and transfer the BC Management line of business to its
founder in the second quarter of 2019. In addition, management determined to
discontinue the operation of
Also, in
Revenue
Year ended December 31, Change
2019 2018 $ %
(dollars in thousands)
Revenue:
Technology $5,469 $3,522 $1,947 55%
Professional Services 13,851 16,532 (2,681) -16%
Total revenue from continuing operations
The increase in revenue in the Technology Segment was primarily attributable to
the acquisition of OpenALPR in
The decrease in revenues in the Professional Services Segment was primarily
attributable to the winding down of Firestorm operations. During the year ended
20
Cost of Revenue, Gross Profit and Gross Margin
Year ended December 31, Change
2019 2018 $ or % Points %
(dollars in thousands)
Cost of revenue:
Technology $1,652 $1,642 $10 1%
Professional Services 7,406 8,336 (930) -11% Total cost of revenue 9,058 9,978 (920) -9% Gross profit: Technology
3,817 1,880 1,937 103%
Professional Services 6,445 8,196 (1,751) -21% Gross profit
$10,262 $10,076 $186 2% Gross margin: Technology 70% 53% 17% 32% Professional Services 47% 50% -3% -6% Gross margin 53% 50% 3% 6%
The increase in gross profit in the Technology Segment was primarily attributable to the inclusion of OpenALPR since its acquisition in March 2019.We realize higher margins from the revenues associated with software and licensing since there are less labor costs incurred.
The decrease in the cost of revenues and gross profit in the Professional
Services Segment was primarily related to the winding down of Firestorm lines of
business and also reflected a decrease in direct billable labor as a result of
the federal government furlough. During the year ended
Operating Expenses
Year ended December 31, Change
2019 2018 $ %
(dollars in thousands)
Operating expenses:
General and administrative expenses
1,298 991%
Impairment of intangibles 1,549 - 1,549 -
Operating expenses $19,351 $15,199 $4,152 27%
General and Administrative Expenses
During the year ended
Selling and Marketing Expenses
The increase in the selling and marketing expenses during the year is attributable mainly to the increased marketing efforts to promote our products and services including trade shows, digital marketing, and other sales and marketing activities for developing our Technology Segment and increase staffing to support the Company's growth plan. The overall increase in selling and marketing expenses was partially offset by a decrease in selling and marketing expenses related to the Professional Services Segment due to the realignment of Firestorm in the current year.
Research and Development Expense
The overall increase in research and development expenses is primarily attributable to the strategic shift to develop new products and additional software capabilities in 2019, as a result of our increased focus on the Technology Segment. The increase in our research and development expenses is mainly attributable to an increase in headcount and hours associated with the research and development activities.
Impairment of Intangibles
In
Other Expense
Year ended December 31, Change
2019 2018 $ %
(dollars in thousands)
Other expense:
Loss on extinguishment of debt $(1,158) $- $(1,158) -
Interest expense (4,098) (492) (3,606) -733%
Other expense (20) (65) 45 69%
Total other expense $(5,276) $(557) $(4,719) 847%
The increase in other expenses is primarily attributable to an increase in
interest expense related to the 2019 Promissory Note. Additionally, the increase
in other expenses was attributable to costs associated with the extinguishment
of debt of
Income Tax Expense
The income tax provision for the year ended
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Non-GAAP Measures
EBITDA and Adjusted EBITDA
We calculate EBITDA as net loss before interest, taxes, depreciation and
amortization. We calculate Adjusted EBITDA as net loss before interest, taxes,
depreciation and amortization, adjusted for (i) impairment of intangible assets,
(ii) loss on extinguishment of debt, (iii) stock-based compensation, (iv) losses
on sales of subsidiaries, and (v) other unusual or non-recurring items. EBITDA
and Adjusted EBITDA are not measurements of financial performance or liquidity
under accounting principles generally accepted in the
The following table sets forth the components of the EBITDA and Adjusted EBITDA for the periods included (dollars in thousands):
Year ended December 31,
2019 2018
Net loss $(14,412) $(5,709)
Income taxes 47 29
Interest 4,098 495
Depreciation and amortization 1,867 1,047
EBITDA $(8,400) $(4,138) Impairment of intangible assets
465
Restructuring charges 333 -
Loss on sale of Secure Education 3 -
Adjusted EBITDA $(4,911) $(3,673) The following activities have impacted our Adjusted EBITDA from continuing
operations as of
Technology Revenues
Due to the strategic shift to focus more on our Technology Segment, we have used
additional metrics to measure the revenue growth associated with our Technology
Segment. We calculated our Pro-forma Technology Segment revenue to include the
net sales of
The following table sets forth the components of the per-forma Technology Segment revenue (without the inclusion of OpenALPR revenue prior to the OpenALPR Technology Acquisition) and pro-forma Technology Segment revenue (with the inclusion of OpenALPR revenue prior to the OpenALPR Technology Acquisition) for the periods indicated (dollars in thousands):
Year ended December 31, Change
2019 2018 $ %
Per-forma Technology Segment Revenue
Automated traffic safety enforcement
2,066 100%
Other - 109 (109) -100%
Per-forma Technology Segment Revenue
Pro-forma Technology Segment Revenue
Automated traffic safety enforcement
- 109 (109) -100%
Pro-forma Technology Segment Revenue
The following activities have impacted our Technology Segment revenues as of
Lease Obligations
At
?Columbia, Maryland - The corporate headquarters ? Linthicum,Maryland - Storage facility for inventory related to our technology hardware ?Chantilly, Virginia - The corporate office of AOC Key Solution ?Fort Worth, Texas - The corporate office of Global entities
We believe our facilities are in good condition and adequate for their current use. We may improve, replace or reduce facilities as considered appropriate to meet the needs of our operations.
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Liquidity and Capital Resources
The net cash flows from operating, investing and financing activities for the periods below were as follows (dollars in thousands):
For the Year Ended December 31,
2019 2018
Change
$ %
(dollars in thousands)
Net cash used in operating
activities-continuing operations $(11,767) $(3,076) $(8,691) 283%
Net cash (used in) provided by investing
activities - continuing operations (556) 472 (1,028) -218%
Net cash provided by financing
activities-continuing operations 11,639 2,409 9,230 383%
Net decrease in cash, cash equivalents
and restricted cash and cash equivalents-
continuing operations $(684) (195) $(489) 251%
Net cash used in operating activities - continuing operations for the year ended
The net decrease of net cash (used in) provided by investment activities -
continuing operations of
Net cash provided by financing activities - continuing operations for the year
ended
During 2019 and 2018, we funded our operations primarily through cash from
operating activities from our subsidiaries, secured borrowing arrangements,
issuance of debt, and the sale of equity. As of
We believe our existing cash and net cash flow will fund our operations over the next twelve months.
Operating assets and liabilities consist primarily of receivables from billed and unbilled services, accounts payable, accrued expenses, current portion of long-term debt and secured borrowing arrangements, and accrued payroll and related benefits. The volume of billings and timing of collections and payments affect these account balances.
At
At
The table below shows the quarter by quarter growth in the unaudited remaining contract value of licensing and subscription contracts in the Technology Segment (dollars in thousands):
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Series A Preferred Stock
The holders of Rekor Series A Preferred Stock are entitled to quarterly
dividends in the amount of
For the year ended
Series B Preferred Stock
As part of the acquisition of Global, we issued 240,861 shares of
Short-Term Borrowing
On
On
During the year ended
23
Promissory Notes
On
The 2019 Promissory Notes resulting in the following detailed transaction (dollars in thousands):
Financing:
Notes payable, includes exit fee$21,000 Debt discount financing costs (2,599) Extinguishment of debt (1,113)
Repayment of notes payable and interest expense, net of debt discount (2,515)
Investment in OpenALPR Technology, includes
(12,000)
Issuance of warrants in conjunction with notes payable 706
Accounts Payable 360
Net cash proceeds from notes payable $3,839 As of
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.
Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations
is based upon
We believe the application of accounting policies, and the estimates inherently
required therein, are reasonable. These accounting policies and estimates are
periodically reevaluated, and adjustments are made when facts and circumstances
dictate a change.
Revenue Recognition
We generate our revenues substantially from two sources: (1) licensing and subscription revenues for software and related technology products and services and (2) professional services to clients. Some of our revenues are subject to seasonal variation, as more fully described in "Seasonality" below.In some cases, we have sold software on a long term license basis, that includes continuing opportunities to contract for maintenance and support at a relatively low periodic cost. In connection with such sales, we have deferred revenue recognition to spread it over the expected life of the contract and have established a contract liability associated with the contract. Our current sales model is oriented toward subscription sales.
Revenue is recognized upon transfer of control of promised products and services to our customers, in an amount that reflects the consideration we expect to receive in exchange for those products and services. If the consideration promised in the contract includes a variable amount, for example maintenance fees, we include an estimate of the amount we expect to receive in the total transaction price, if it is probable that a significant reversal of cumulative revenue recognized will not occur.
The revenues for technology products and services are from fees that provide customers with software licenses and related support. During the second quarter of 2019, we changed our method of selling in the Technology Segment from perpetual software licenses, with associated maintenance services, to service subscriptions of limited duration. These subscriptions give the customer a license to use the latest version of the software only during the term of the subscription. Revenue is generally recognized ratably over the contract term. This change has impacted our revenue in the short term. However, the amount of contract revenue received over the long term is not expected to be reduced. Our subscription services arrangements are non-cancelable and do not contain refund-type provisions.
The professional services contracts recognize revenue based on a time and materials or fixed fees basis. These revenues are recognized as the services are rendered for time and materials contracts, on a proportional performance basis for fixed price contracts, or ratably over the contact term for fixed price contracts with subscription services.
Accounts Receivable
Accounts receivable are customer obligations due under normal trade terms. We perform continuing credit evaluations of its clients' financial condition, and we generally do not require collateral.
Management reviews accounts receivable to determine if any receivables will potentially be uncollectible. Factors considered in the determination include, among other factors, number of days an invoice is past due, client historical trends, available credit rating information, other financial data and the overall economic environment. Collection agencies may also be used if management so determines.
We record an allowance for doubtful accounts based on specifically identified
amounts that are believed to be uncollectible. We also record as an additional
allowance a certain percentage of aged accounts receivable, based on historical
experience and our assessment of the general financial conditions affecting its
customer base. If actual collection experience changes, revisions to the
allowance may be required. After all reasonable attempts to collect an account
receivable have failed, the amount of the receivable is written off against the
allowance. The balance in the allowance for doubtful accounts was
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Income Taxes
We use the liability method of accounting for income taxes as set forth in the authoritative guidance for accounting for income taxes. This method requires an asset and liability approach for the recognition of deferred tax assets and liabilities. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
Management has evaluated the recoverability of the net deferred income tax assets and the level of the valuation allowance required with respect to such net deferred income tax assets. After considering all available facts, we fully reserved for our net deferred tax assets because management believes that it is more likely than not that their benefits will not be realized in future periods. We will continue to evaluate net deferred tax assets to determine whether any changes in circumstances could affect the realization of their future benefit. If it is determined in future periods that portions of the net deferred income tax assets satisfy the realization standard, the valuation allowance will be reduced accordingly.
The tax effects of uncertain tax positions are recognized in the consolidated financial statements only if the position is more likely than not to be sustained on audit, based on the technical merits of the position. For tax positions meeting the more likely than not threshold, the amount recognized in the consolidated financial statements is the largest benefit that has a greater than 50% likelihood of being realized. It is our accounting policy to account for Accounting Standards Codification ("ASC") 740-10-25-related penalties and interest as a component of the income tax provision in the consolidated statements of operations.
As of
Going Concern and Management's Plan
Beginning with the year ended
We have generated losses since inception in
We believe that based on relevant conditions and events that are known and
reasonably knowable, our current forecasts and projections, for one year from
the date of the filing of the consolidated financial statements in this Annual
Report on Form 10-K, indicate our ability to continue operations as a going
concern for that one-year period. We are actively monitoring our operations, the
cash on hand and working capital. Additionally, as of
Our ability to generate positive operating results and complete the execution of our business strategy will depend on (i) our ability to maintain timely collections from existing customers in, as well as continue the growth of, our Technology Segment, (ii) timely completion of the disposition of the businesses in our Professional Services Segment, (iii) the continued performance of our contractors, subcontractors and vendors, (iv) our ability to maintain and build good relationships with our lenders and financial intermediaries, (v) our ability to meet debt covenants or obtain waivers in case of noncompliance and (vi) the stability of the world economy and global financial markets. To the extent that events outside of our control have a significant negative impact on economic and/or market conditions, they could affect payments from customers, services and supplies from vendors, our ability to continue to secure new business, raise capital, complete the sale of our assets held for sale in a timely fashion and otherwise, depending on the severity of such impact, materially adversely affect our operating results.
New Accounting Pronouncements
See Item 8 of Part II, "Financial Statements and Supplementary Data - Note 1 - Business and Significant Accounting Policies"
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